Term Life Offers Great Flexibility

Term life insurance is a one of type of life insurance for families to find an affordable way to financially protect the future in case a parent passes away. It’s relatively easy to understand compared to other life insurance options. A buyer needs only to choose a coverage amount and a policy length. 

This is one of the reasons term life insurance is usually the most affordable way to buy life insurance. Because the policy has an ending point, such as 10, 20 or 30 years after purchase, the insurance company is taking on less risk and is able to offer a better price than it can for permanent life insurance policies that last indefinitely until death. 

Policy Matures With No Payout - Term life policy expires and there’s no payout. A payout only comes if the insured person passes away while the policy is in force. Some policy offers guaranteed renewal option. But your rates will not be guaranteed and you’ll to pay a higher price each year you renew after each term period is over.

No Cash Out - If you find you no longer want or need the policy, there’s no way to “cash it out" - because term life policies contain no cash value. Unlike the permanent policy a portion of your premium payments into a cash value account within the policy. If you want to end a cash value policy, you can terminate the policy with the company and walk away with the cash value, minus any charge for surrendering. 

Beneficiary - One of the obligations of the insurance company is to make the payout only to those named as a beneficiary. The life insurance company is not allowed to decide on its own who should get paid, or who deserves the money. It must pay the person(s) listed. It’s easy to change your beneficiary any time by filling out a form from the insurance company.

Avoid Naming Minor As Beneficiaries - Avoid naming minor children as beneficiaries. Children can’t receive a life insurance payout directly. If minor children are listed as beneficiaries, a probate court will need to name a guardian who can oversee the money until the children reach the age of majority, which varies by state.

It’s a situation best avoided because court fees will eat into the funds, and the guardian may not know your wishes for how the money should be used. Instead, you can form a trust that can receive the funds and use the money according to your wishes.

Convert Term Life Insurance Into Permanent Policy - One of the features of term life insurance policies is the “conversion” feature. This is a window of time during which you can convert to a permanent life insurance policy from the same insurer.

You may want to do this if your circumstances have changed. For example, you may have developed health conditions that would make new life insurance unaffordable. You could use conversion to lock in a permanent policy for the rest of your life, without answering any medical questions or provide evidence of insurability. The cost of your new permanent policy will be based on your health status at the time of the original purchase, not your current health status.

While conversion can be a great option for certain circumstances, there are a couple potential trouble spots:

• You won’t have a wide range of options for the permanent life policy. The insurer decides what policy you can take. 
• You won’t know what the conversion price might be when you buy the term life policy. You won’t know ahead of time what you’re going to pay if you convert down the road. And the conversion price will vary based on your age at the time of conversion and the policy that the insurer is offering at that time.

Nonetheless, even with these unknowns, term life conversion provides flexibility for an uncertain future.