Should You Buy Term Life Insurance?

Your financial planner mentions the words term life, 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 some 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:

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.

Term policies range from five to 35 years. Longer policies have higher premiums, but buyers shouldn’t skimp on coverage just to save money, says Byron Udell, chief executive of online insurance broker AccuQuote.com. 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,” says Udell.

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, says Douglas Mishkin, president and chief executive of New York brokerage Algren Associates.

Policies can have different riders, including provisions that pay out double the money in the case of accidental death, but some can significantly increase the cost of a policy. Gary Dworkin, chairman of the National Association of Independent Life Brokerage Agencies, says he would be cautious about extra benefits. “I don’t want to be responsible for recommending a bell or whistle at the expense of the most important thing: the base product,” he says.