What is Term Life Insurance?
Term life insurance or term assurance is life insurance which provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.
Who Should Buy Term Life Insurance?
Term life works best when there's a big need for coverage, but not much cash to pay for it. For example, a young family with limited cash resources might have trouble paying for basic living expenses if the family breadwinner passed away. Term life is ideal for these situations because you can buy six figures of insurance protection with a small monthly payment.
Term life also works well if you have limited-term coverage needs. For example, you might want coverage during your working years, but not once you're retired. Or you might only want coverage while you have dependent children at home, or through the duration of your mortgage. The most popular policies last for 20-30 years. They cover a crucial period in your life when your family depends on your income.
The Advantages of Term Life Insurance
The biggest advantage is affordability. Term life is the most efficient way to get maximum life insurance protection for the least amount of money. When you're young and just starting out, you know you need insurance, but you probably don't have much spare cash to pay for it. With a term policy, you can buy a larger death benefit for less cash than you could with any other type of life insurance.
Term life is also flexible. You can buy coverage for a range of time periods, to ensure you're not buying coverage you don't need. Common term periods are:
If you think you might want to convert your term policy to a permanent policy later in life, you have that option, too. A term policy lets you get your foot in the door, so to speak. There are lots of ways you can expand that coverage later, if you need to.
The Disadvantages of Term Life Insurance
The main disadvantage of term life is that your policy has an end point. What happens if you pay into the policy for 30 years, and pass away on the next day? Your family doesn't get any payment. There are a couple of workarounds, though. When your coverage period ends, for example, you may have the option to renew the policy. However, every time you renew the policy for an additional term, your rate goes up because you're older, and age represents more risk to the insurance company. Still, the affordability of the initial term is often all young families want and need.
Contact us to learn more about the right term life insurance for you.
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