There’s really not a lot that can be said about basic term insurance. Most people probably know most of it anyway. But in the interests of thoroughness here’s a quick rundown.
- expires after a certain time
- 10-30 year policies
- for a healthy young person, VERY cheap
- the most coverage for the least amount of money
Now here’s a bit of trivia that most people may not know. The vast majority of people (more than 90%) who have term insurance outlive their policy. That’s why it’s so cheap. So in a sense, people who outlive their policy both win and lose and the same time. Obviously they win by staying alive. But they also lose by staying alive, because that money is gone. But now you can win no matter what.
A few years ago, some innovative companies came out with a new type of policy–Return of Premium term (ROP). Now, this type of policy does have one disadvantage: it costs a great deal more than traditional term. However, it has one huge advantage: if you buy it, and outlive the policy, you get back every penny that you paid in premiums!
To give an example, say a 35-year-old man buys a 20-year regular term policy for $250,000. That would cost about $28/month. Now say his twin buys a 20-year, $250,000 ROP policy. The twin would pay $88/month–but at the end of the 20 years, he would get a check from the insurance company for slightly over $21,000.
A ROP policy is not for everybody, of course, but for some people it makes sense.