Cheap rates on term insurance
By Christy Heady • Bankrate.com

Term insurance is usually the least expensive form of insurance coverage and is very affordable to purchase when you're young. As you get older, your risk of dying increases, so the cost of term insurance goes up. This risk is known as the mortality rate.

As with most other insurance coverage, you pay premiums annually, semiannually, or quarterly for term insurance. For this premium, you receive a predetermined amount of life insurance protection. Term insurance is very inexpensive, which is why it's a popular life insurance policy. However, it only provides for death protection -- there's no buildup of the money you pay in premiums.

If you are the insured spouse and you die during the term you are insured, your beneficiaries will collect. If not, all of the premiums are gone since there is no cash buildup in the policy, as there is in other types of life insurance policies that promote savings features (and hefty commissions).

An interesting factoid: Young women who are nonsmokers tend to pay the least amount in premiums for term insurance. Because the cost of term insurance does not depend solely on age (where the younger you are, the lower your premiums are), and women live longer than men, women will pay less -- especially if they don't light up.

Purchasing a term policy
When you buy term insurance, you can buy it with level (same) premiums for one year, called annual renewable term (ART), and renewable until age 90. Other term policies and specified time periods are typically 5, 10, 15 or 20 years. At the end of these time periods, the term insurance is renewable at sharply higher premium levels because you are older and statistically more likely to die.

Some people refer to term insurance as "renting coverage" because the only way your insurance policy pays out is if you die during this period. The payouts are offered in a lump sum payment or a steady stream of payments to your beneficiaries.

You will probably be required to take a physical examination to qualify for term insurance. Make sure your policy offers a guaranteed renewability feature, so you don't have to take a medical test to continue coverage for another term, especially as you get older. Also, if you have an annual renewable term policy, you can convert it to a whole-life policy -- without a medical exam. This is called guaranteed conversion, and allows you to convert from rising-premium term insurance to a fixed-premium whole life policy.

Here's a tip: If you think you may do this sometime down the road, make sure your term insurance policy is convertible into a whole life policy without another medical examination. There's an additional cost for this provision, but as you get older you'll end up saving more in premiums by doing so and avoiding the medical examination.

Here are some things to keep in mind when looking at a term insurance policy:

Make sure the illustrations that your insurance agent gives you illustrate the rates you will pay and shows the maximum guaranteed rate they can require you to pay. There is a state law that regulates the maximum guarantees. But remember, policy illustrations are not guarantees -- even if it's in black and white. Term premiums are subject to change based on mortality and the insurance company's finances.

Compare a level premium term policy to an annual renewable term (which increases after each term). You know that premiums on ordinary ART policies increase in cost every year, right? Well, some companies offer a form of level premium term, in which they project that the annual premium will remain the same for 5, 10 or 20 years. At the end of the specified time period, your policy may kick back into a policy that has increasing premiums every year, or remain level for five years and then kick back into increasing premiums. Ask your agent if the premiums are projected or guaranteed. Insurance companies are not obligated to meet projected premiums -- even if they are in the illustrations they give you.

Don't always settle for a short-term level term policy. Why? Because the premiums may skyrocket after the short-term is over. Again, because this is the life insurance industry, it depends on the policy. Make sure the agent explains all details in black and white.

Choose a guaranteed annual renewable term to avoid medical exams. This ensures that you do not have to have a new medical exam every year in order to renew your term policy. Avoid those policies, which are known as reentry term.

If you would like quotes on term insurance, contact one of the following quote services. There is no obligation to purchase term insurance, but make sure they can handle the transaction in your state if you do buy a policy.

• QuickQuote (800/867-2404) maintains a database of 30 most competitive, A-rated term life insurance companies and will search to find the lowest cost term insurance policy based on your specifications, your age and your health condition.
  
  
• SelectQuote (800/963-8688) tracks over 1,400 companies for term insurance prices nationwide.

-- Posted: July 28, 2004