Physician Financial and Insurance Services

Term life insurance is “pure” insurance. It offers protection only for a specific period of time. If you die within the time period defined in the policy, the insurance company will pay your beneficiaries the face value of your policy. Click for basics of term life insurance.

Term insurance differs from the permanent forms of life insurance, such as whole life, universal life, and variable universal life, which generally offer lifetime protection as long as premiums are kept current. Also, unlike other types of life insurance, term insurance does not accumulate cash value. All the premiums paid are used to cover the cost of insurance protection, and you don’t receive a refund at the end of the policy period. The policy simply expires.

Term life insurance is often less expensive than permanent insurance, especially when you are younger. It may be appropriate if you want insurance only for a certain length of time, such as until your youngest child finishes college or you are able to afford a more permanent type of life insurance.

The main drawback associated with all types of term insurance is that premiums increase every time coverage is renewed. The reason is simple: As you grow older, your chances of dying increase. And as the likelihood of your death increases, the risk that the insurance company will have to pay a death benefit goes up. Unfortunately, term insurance can become too expensive right when you need it most in your later years.

Several variations of term insurance do allow for level premiums throughout the duration of the contract. You may be able to obtain 5-, 10-, 20-, or even 30-year level term, or level term payable to age 65. An advantage of renewable term life insurance is that it is usually available without proof of insurability.

Life insurance can be used to achieve a variety of objectives. The cost and availability of the type of life insurance that is appropriate for you depend on factors such as age, health, and the type and amount of insurance you need. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges.

Who's it for?

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• People with a temporary need for life insurance protection.

• Those who need a large amount of insurance protection but have limited budgets.

• People with specific business needs (e.g., business owners who want to cover the life of a key employee who has a set number of years until retirement).

Benefits:

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• It provides insurance protection for a low cost (at least initially).

• If your needs change, most policies allow you to convert your term policy for a permanent life insurance policy without having to take a medical exam or provide other information about your health.

• Term insurance is a good way to supplement other coverage when you have added financial responsibilities for a given period of time (e.g., mortgage, college expenses).

• Death benefits are generally received free from income tax.

Some drawbacks to consider:

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• Premiums generally increase with age and they could become unaffordable later in life.

• There is no cash value element, so you miss the tax-deferred cash value of permanent life insurance policies, such as Whole Life.

• Once the term period expires, the insurance coverage ceases and the policy has no further value