“Term” life insurance policies can also be referred to as “temporary” life insurance.
Term policies can vary in both Death Benefit Amounts (i.e. $500,000, $1,000,000) and in the stated Term (or effective life) of the policy (i.e. 10-yr, 15-yr, 20-yr, 30-yr).
The best candidates for term life policies are those individuals who know they will only need a certain amount of life insurance for a specified period of time (or term).
With Term Life Policies, insurance companies offer you a policy based on set criteria. For example:
30-yr old male, smoker, $500,000 death benefit, 20 years.
This says a 30-yr old male who smokes, is seeking a life insurance policy on himself with a death benefit of $500,000, and will need this policy for 20-years.
After 20-years, this individual no longer needs this life insurance policy.
Advantages of Term Life Insurance Policies
- Term Life Policy holders pay for insurance, and just insurance. There is no savings/investment component in a term life insurance policy. Term Life Insurance is often the cheapest option for those who have few financial options, yet still need some sort of life insurance.
- You can set the length (in years) of your life insurance policy at the outset. Typically, Term Life policies run in 10, 15, 20, or 30-year increments.
- Many Term Life Policies allow you to convert your existing policy into a permanent policy with no new health evaluation, provided it is done within a certain time frame from initial date of purchase. This is an excellent option if your health has worsened since you got the policy and want to make sure you have insurance for life.
- Term Life policies are excellent partner vehicles for those who follow the savings discipline of “Buy Term, Invest The Rest.”
- You can stop payments anytime, and your coverage will cease with no penalties.
Disadvantages of Term Life Insurance Policies
- If you continue to need insurance coverage after your policy term is completed, you are forced to undergo a new underwriting process (including health exam) to get a new policy. This is unfavorable if your health has changed for the worse since you first bought your original policy (i.e. high blood pressure, diabetes, high cholesterol, cancer, depression, etc). Depending on how your health has evolved over the years, you may end up being denied future coverage.
- If you continue to need insurance coverage after your policy term is completed, getting a new policy at your current age and health can be cost prohibitive. It would have been more economical to have purchased a permanent policy in the first place.
- Like most types of insurance, such as car and health insurance, if you do not “trigger the benefit” of your policy, all the premiums you paid will be “down the drain.” Permanent policies typically have designed in them, a “breakeven point;” a point at which you can withdraw your life insurance account balances and end up having been insured all those prior years FOR FREE.
- If you ended up needing your insurance for periods longer than you originally thought, it would have been cheaper to buy a permanent policy.
- Term Insurance policies do not offer creditor protection for your savings balances that you saved in your other vehicles instead of a permanent life insurance policy.
For your free Term Insurance quote, please fill out our confidential online insurance quote form!