Term Life Insurance contracts are based on many factors. The length of the coverage Term, whether they can be renewed, the length of the price guarantee, and whether they can be converted to permanent Insurance. Here are the most common types of Term Insurance, as described by Insurance for Dummies author Jack Hungelmann. FYI, the Term policies SelectQuote markets fall into the "fixed-rate level Term" category.

Annual renewable Term (ART)
Annual renewable Term is pay as you go Insurance. Each year, you pay for your mortality costs for that 12-month period, plus expenses. On each 12-month anniversary, you're a year older, your mortality costs have increased slightly, and your premium increases slightly as well.

Fixed-rate level Term
Instead of annual price increases, as with annual renewable Term, level Term policies allow you to lock in pricing for anywhere from 5 to 30 years in 5-year increments. The most common options are 10, 15, and 20 years.

Most level Term policies can be converted to permanent policies any time, regardless of health (although some policies limit the conversion period to 15 years or so). My ironclad rule is never buy Term Life Insurance that doesn't have an option to convert to permanent Insurance, regardless of your health. You never know what the future may hold, so keep your options open.

Decreasing Term
Decreasing Term policies have coverage that reduces annually, but the premium stays level for the duration—usually 15 to 30 years. A popular type of decreasing Term Life Insurance reduces to match a mortgage payoff. Like a mortgage, coverage reduces very slowly in the first few years and picks up steam in the later years. The rate of reduction is tied to the mortgage interest rate and the length of the mortgage.

The good news about decreasing Term is that the rates usually won't change for the duration of the Term you choose. The bad news is that your Life Insurance coverage is reducing at a time when your living expenses are rising. Not a good idea. The other bad news is that your Life Insurance normally ends when the Term ends - the policies aren't renewable. But in all likelihood, your need for Life Insurance hasn't ended. And the rates for this type of coverage aren't nearly as good as level re-entry Term rates for the same coverage period.

Term Insurance from your mortgage company
If you have a home mortgage, you probably receive offers in the mail for mortgage decreasing Term Insurance from the mortgage company. Buying the policy is tempting. You die; the mortgage gets paid. The price looks reasonable, and they can include the Insurance premium with your house payment. What could be sweeter?

Buy it. Buy all that you can. But only if your health is bad, you're obese and a chain smoker, or you've been given six months to live. If you're healthy, buy your Insurance elsewhere. Here's why.

• Insurance from the mortgage company is almost always more expensive—often considerably more so—than coverage you can buy privately.
• The coverage ends when you sell your home, whereas the same coverage purchased privately will not end. That's important, especially if your health has soured.
• The beneficiary is the mortgage company, not your family. Never a good idea. Your spouse may not want to pay off the mortgage with the money, if the policy proceeds could earn 10 percent in a money market account and the mortgage rate is only 7 percent. (Not to mention the tax write-off of the mortgage interest!) Or if something unexpected has happened and the family desperately needs the money for something more important.

> Visit the Insurance for Dummies website.

From Insurance for Dummies © 2001 by Wiley Publishing, Inc. © 2000 Text and Author Created Materials Copyright Jack Hungelmann. Used by arrangement with John Wiley & Sons, Inc.

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