Term Life Insurance Provides You With Many Options and Benefits
No matter your stage in life, buying a life insurance policy is always something you should consider. Locking in a policy early in life can have lots of advantages that will reward you and your family later on.
But depending on your situation, or what you anticipate it to be in the future, it can be tough to determine what kind of life insurance might be best for you. In many cases, the right choice is to buy a term life insurance policy.
The difference between term insurance and permanent life insurance
Although there are several kinds of life insurance policies, they generally fall into two main categories: term life insurance and permanent life insurance.
Term life insurance will provide a person with coverage for a fixed amount of time, generally apportioned in five-year increments ranging from 5 to 30 years, in exchange for a fixed rate of payments. When the term of coverage expires, the life insurance coverage expires. The insured can then renew the policy for an additional term or forego coverage. If the policy is renewed, the premium will be at a higher rate because the insured is older than they were when the previous policy was written. If a person passes away during the time the term is in force, a death benefit will be paid to the person they designate.
Permanent life insurance has many other names including whole life, universal life, variable life, or variable-universal life. In exchange for paying fixed premiums, a person is guaranteed coverage for their entire lifetime as long as premium payments are kept current. When the insured person dies, no matter at what age, the policy is paid to their designated beneficiaries. The trade-off between permanent and term life policies is that term life offers significantly less expensive premium payments.
The Key Benefits of a Term Life Insurance Policy
It is the least expensive way to buy a significant amount of coverage. If you are younger, perhaps newly married, or just starting a family, and you want to make sure your loved ones are taken care of in the event of your death, term life insurance is the best solution at a time in your life when every dollar matters.
The market for term life insurance is competitive. Many companies offer term life insurance, and with so much competition in the marketplace, there is a fierce battle for applicants. That means very favorable rates for premiums.
Term life insurance is often easy to understand. It is usually a very straightforward transaction. In exchange for a certain amount of money each month, you are provided with a certain amount of protection for a specified number of years. That ease makes it an especially popular vehicle for younger people seeking coverage for their growing families.
The death benefit is income tax free. When your beneficiaries are paid a death benefit amount, the full amount is theirs to keep.
Getting term life insurance may be easier than getting permanent life insurance. If a person has any number of health conditions, they may not be able to get permanent life insurance. However, if they can satisfy certain underwriting criteria that is applicable to their health situation, they are much more likely to be able to get term life insurance.
There are options to traditional term life insurance. Those applicants that are turned down for traditional term life insurance can still get coverage in a majority of cases with a guaranteed death benefit policy. This type of policy will pay out only a very limited benefit during the first few years the policy is in force, and then convert to a fully payable term life insurance policy for the remainder of the term. It is often times the best and only option for someone with serious medical conditions, such as Alzheimer’s disease, glaucoma, arthritis, or vision impairments.
Term life insurance provides coverage only for the part of your life when you need to have the most coverage. As you are working and growing your family, you need to have the most protection for the most important part of your life. For example, if you are the primary wage earner in your home, and you were to die, a term life insurance policy would provide the cushion that would protect your family. However, as your family grows up and they move on to lives of their own, and as you enter retirement, the need to replace those earnings diminishes. That is an appropriate time for term life insurance to lapse or possibly lessen, as it coincides with the major life changes you are going through.
Term life insurance can be tied to cover a specific need. You may want to consider term life insurance if you have recently bought a home and need to protect yourself against losing the home if you die. Buying a $250,000 policy to be used in the event you need to pay off a $250,000 mortgage is a popular form of financial security for many people.
Flexibility. Rather than carry a life insurance policy in perpetuity, term insurance makes it easier to evaluate your situation and the ups and downs you will experience at various stages of your life. If a policy expires, you may decide to increase the value, drop the value or do away with coverage completely, all doing so while investing the least amount of dollars possible.
Get the full amount of coverage you need. People that opt for permanent life insurance at an early age often find that because premiums are higher than with term life insurance, they skimp and buy less insurance than they really need to replace lost wages, pay off a mortgage or pay for their children’s college education if they die. Because term life insurance premiums are more affordable, a person is more likely to opt for an amount that makes more fiscal sense.
Cash accrual for a permanent life insurance policy may not be the best investment vehicle. While it’s true that permanent life insurance polices allow part of their premium to accrue and be returned to the policy holder at some point, the fact of the matter is, many other investment vehicles offer a more attractive way to invest. If a person has a 401k, a Roth or a Roth IRA, chances are they are already getting a better return on investment than with a return they would get on a life insurance policy. Using the difference in premiums on a term policy and investing them elsewhere can make for a much better rate of return for the same amount invested.