Just exactly what is term life insurance? Why would I consider it? And why is my insurance agent pushing whole life over term life insurance? In this post, I want to help you understand the term life insurance definition, and why I prefer it over whole life.
Term life insurance is just what the name implies, life insurance for a fixed period of time, or term. Term life insurance is generally substantially cheaper than permanent life insurance, and is known to be perhaps the simplest form of life insurance. Term life insurance is the most popular type of life insurance today, and it is a great way to make sure that your family and other beneficiaries will be protected in the event of a premature death. Not only are they well protected financially, but they are protected without you having to pay a high premium payment every month.
Term Life Insurance Coverage
Coverage amounts for term life insurance can range anywhere between $50,000 and $1,000,000 depending on several factors. Coverage for spouses and domestic partners also reduces at age 65 and terminates at age 70. A term insurance policy expires after the specified amount of time, and after that period, the insured can drop the policy or pay annually increasing premiums to continue the coverage provided. On the whole, term insurance is often the most inexpensive way to purchase high face value of coverage that lasts 10 or 20 years, depending on what you select.
Term Life Insurance Payouts
Death benefit payable from any cause except suicide within first two policy years. If the insured dies during the term, the death benefit will be paid to the beneficiary. If, however the insured dies one day after the policy expires, the beneficiary will get nothing. Since term insurance is a pure death benefit, its primary use is generally to provide for covering financial responsibilities of the insured, and since it can purchased at a low cost, term insurance is great for young families or other people who would be financially devastated by the death of a family member or business partner. Also, many term policies have double indemnity riders that double the face value in the event of death by accident, providing further protection for your family in the case of hospital bills and other associated costs.
Term Life Insurance Premiums
Premiums may increase each year with an annually renewable term policy, or remain level for a set period and the insurance is generally less expensive than permanent cash value life insurance. The amount of these premiums is dependent on age and heath history, and may increase with age and may become un-affordable later in life. If after the specified term has passed and you would like to renew your term policy, you should be aware that although the policy is renewable, you will face progressively higher premiums than before.
Term life insurance is generally cheaper when you first start out, making it advantageous for you and your family when you are not quite yet financially stable and able to afford large premiums. Term life insurance can be easily converted to permanent if done by the age specified by the insurer, sometimes without a physical examination. It is an insurance policy covering a person’s life for a specified number of years. Insurance industry studies show that it is very unlikely that the death benefit will ever be paid on a term life insurance policy.
In closing, I would like to illustrate my opinion of the use of term life insurance. As this definition post indicates, you really do want to use term life insurance as insurance (I don’t mean to be facetious with that comment), but the bottom line is, don’t bank on getting the death benefit. Use term life insurance as protection for your family in the event of an untimely death, not as a part of your retirement or money you want to give to your children as an inheritance. Develop a business plan for financial freedom, use strategies and advice from sources like Personal Finance Resources, and buy term insurance to cover the period of time you think you will need to reach your financial goals. Check my comparison of term life insurance and whole life – Term Life Insurance vs Whole Life.