Well now, my first blog post, and this is for insurance-curious only.
Term insurance lasts only for a limited time. Could be 10,15,20,25,30, even 40 years.
But it is temporary insurance.
It begins and ends.
It has no "cash value." No "equity."
It is popular because the premiums are so much lower than whole life. But more about that later.
Term insurance is perfect if your need is temporary.
At the end of the term, the insurance stops, or gets violently more expensive, which leaves you in a similar situation. A person only keeps term insurance after the term is up because they have a life-shortening illness. Otherwise, you are throwing money away.
Term is not designed to last forever and is not going to guarantee to pay a death benefit because you can outlive it. In fact, the carriers are counting on it. Studies show that less than 2% of term policies pay a death claim. The rest expire or lapse.
Term rates have been falling for 30 years. This trend has leveled off and may be turning around, We shall see. Certainly things have changed in the term business. Like conversion
Convertible term
Most term policies are convertible to age 65, some more, some less. Before that time, you can convert your term to whole life or some other form of permanent policy without proving that you are insurable. This can be important for planning purposes.
What is the industry up to?
Conversion options are worse now than ever. Several better carriers have restricted which products you are allowed to convert to. Some only offer their most expensive policy for conversion.
Basically, things are tightening up. Most carriers have full discretion which products you can convert to. They can simply take the most attractive option off the market, like Prudential did last year. Their best policy, no longer available to convert to, or even to purchase, for that matter.
So in may cases, term is strictly limited insurance. More now than ever. You may have a great convertibility option, but... you may not. You could be be left high and dry.
The younger you are when you convert, the lower the premium will be.
Term is a very important and valuable tool but it is critical to understand how it works.
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