Should You Buy Term Life Insurance?

Someone mentions the words term life insurance, and you immediately zone out. But supercheap grabs everyone’s attention, and premiums for term life are just that, despite a modest uptick this year. So who needs an insurance policy that pays out only if the person who owns it dies within a certain number of years? Generally, someone with debt that ends after a set period, such as a mortgage or tuition payments, or dependents (kids, an unemployed spouse).

Term life is cheaper than universal and whole-life policies, because those types last longer and double as investment vehicles. But premiums are expected to continue creeping up, so buying a term policy now will likely save you money in the long run. Some tips:

Lock in the Rate

The only way buyers can keep benefiting from today’s low rates is to get a policy with “guaranteed level premiums,” where the rates don’t change from year to year. It’s like getting a fixed rate on a mortgage.

Get the Right Term Length

Term policies range from five to 35 years. Longer policies have higher premiums, but buyers shouldn’t skimp on coverage just to save money. Future health problems could make it much more expensive or even impossible to buy another policy. A $1 million 20-year term policy costs about $670 a year for a healthy 40-year-old man. (Ten years ago, it was $860.) It’s the price of a few hot dogs a week.

Consider a Convertible Policy

Many term life policies can be changed to a universal or whole-life one. This helps people who want to extend their coverage to offset estate taxes—allowing heirs to pay the taxes with the money they receive from the policy—or to continue to provide for their dependents. Buyers should get the longest conversion period possible to avoid having to pay more if their health deteriorates.

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