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Basics of 5 year term life insurance

By Maryalene LaPonsie on July 26th, 2011

The number 5Life insurance can help protect the financial future of your loved ones by paying beneficiaries a lump sum should you pass away while the policy is in force. For those with short-term financial obligations, a five-year term life insurance policy can offer inexpensive coverage.

Who should buy five-year term life insurance?

Five-year term life insurance makes sense in a number of situations, including:

  • Auto loans
  • Business loans
  • College expenses
  • Education loans
  • Home equity loans

Additionally, five-year policies offer an affordable life insurance option for families who might otherwise struggle to pay premiums. Policies with shorter term lengths have lower life insurance rates because the likelihood that an insurer will have to pay a claim within a five year period is relatively small. As a result, five-year term life policies are less expensive than 20-year or 30-year term life policies.

What to consider when shopping for a five-year term policy

Because 5-year term life insurance offers temporary protection, you should look for two features when shopping for this type of term life insurance.

First, look for a conversion option. The ability to convert the policy to permanent life insurance, such as whole life, may be beneficial should your short-term need turn into a permanent one. However, be sure to review the policy rules about conversion--many policies only allow conversion within a certain timeframe.

A second feature to consider is renewal guarantee. As the name implies, this feature gives you the right to renew your life insurance policy after the five year term has ended.

Guaranteed renewal can come in handy if you develop a serious health condition during the policy's term period. Without the guaranteed renewal option, you might find that that it's more difficult to find life insurance if your health declines. Keep in mind that guaranteed renewal is generally allowed only up to a certain age, and that life insurance companies can increase premiums when it comes time to renew the policy.

Life insurance offers a safety net for your loved ones. In the event of death, money from a life insurance policy can be used to pay final costs, offset estate taxes or pay down debt. Five-year term life insurance is an affordable way to purchase life insurance coverage and peace of mind.

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