We normally don’t think too much about life insurance. And since it’s a type of insurance that relates to the end of our lives, it’s the kind we really don’t like to think about much either. After all, health insurance helps to keep us alive, and auto insurance is required by law. But life insurance?
But the reality is that if you have dependents, survivors, or simply people who love you, then you need to have a life insurance policy. And just like other insurance policies, we never want to pay too much for life insurance. The way to do that is by buying term life insurance.
Term insurance is less expensive than whole life insurance
There are different kinds of life insurance policies – whole life and universal life are two of the more common. But they are also expensive, and the reason that they are is because they contain investment provisions. Some of your premium pays for your actual life insurance, but the rest is put into investment funds that grow over time. That’s a nice arrangement, but it’s also an expensive one that many people cannot afford.
Term insurance to the rescue! Term insurance can generally be purchased for a fraction of what you would pay for other types of life insurance. In addition to the fact that none of your premium is being invested in mutual funds, term insurance is also short-term in nature (generally five to 20 years). Since you will only hold it for a period of several years, the likelihood that the insurance company will ever have to pay a claim is also much lower than it is for permanent life insurance policies.
Many people cannot afford permanent life insurance, but because of the lower premiums, most people can find affordable term life insurance quotes.
Because it‘s cheaper, you can buy more of it
One big advantage of cheaper life insurance is that you can buy more of it. For example you might be able to buy $500,000 of term life insurance for what it would cost you to buy a $100,000 whole life policy.
That’s a big advantage to parents with very young children who have a great need for life insurance, but a small budget to pay for it. This is also a big advantage for someone was recently purchased a home, and obviously has not had time to pay down the mortgage. The greatest need for life insurance to payoff the mortgage will be right after the home is purchased. But that’s also a time of otherwise high expense levels. Term insurance fits neatly into that situation.
You can add to your coverage as you need toBecause it’s inexpensive insurance, you can also increase your coverage more easily. You can add a second policy for example, to payoff a brand-new mortgage in the event of your death. Or if you can purchase an additional policy for each child that you have.
If you have two or three term policies, it can often be less expensive to consolidate them all into a single policy that’s even larger than the combination of several. This is possible because life insurance is proportionately less expensive on larger policies.
You keep it only as long as you need it
One of the most attractive features of term life insurance is that you can buy it and you only need to keep it for as long as you need it. This is not true of permanent life insurance policies, which have a fixed death benefit for the life of the policy.
You can, for example, take a 20 year term life insurance policy upon the birth of each of your children. Each policy would replace your income in the event of your death long enough for your children to reach early adulthood. Once they do, the insurance coverage would no longer be needed, at least not as a method of replacing your income.
You can do the same thing with a mortgage. You can take a term life insurance policy equal to the amount of your mortgage at the time you bought the house. If you take a 20 year term policy, the mortgage obviously won’t be paid off within that time if it’s a 30 year mortgage. But 20 years into your mortgage your loan balance will be much smaller than it is now. You could then replace your 20 year term policy with a 10 year term policy for a much lower amount.
Term life insurance policies match up better with specific financial needs that you have in your life. Add that to their basic lower cost, and term life insurance policies are the best bet for most people.