Do You Understand What Term Life Means?
What Is Term Life Insurance?
It surprises me that so many people shop for life insurance without a basic understanding of the different types of life insurance. This really is not the fault of the consumer though, and it should get explained by any good insurance agent. Many people purchase term life, and this may be the best policy for them, but they tend to just buy it because term life is cheaper.
Term life insurance means that you will have a policy for a specific period of time (term). After that, the policy will expire. This term could be 1 year, 10 years, or 30 yeards. But when the contract is up, the policy has ended with (in the purest form) no cash value. On the other hand, wholle life insurance lasts for your whole life, as long as the policy is kept in force. This is one difference between whole and term life. And it is one reason why permanent life policies tend to cost a bit more.
The other difference is that pure term life insurance does not grow a cash value at all. It is only coverage, and is not used as an asset. Whole life or universal life insurance can grow a cash value.
Why Buy Term?
So if you want to buy a policy to cover you while you need a larger face value, term may be the most affordable type of plan for you. Many people want a larger face value while they are raising and educating children, saving for retirement, or paying off a home loan. They want to be covered for hundreds of thousands of dollars, or more. In this case, a term policy will be a more affordable choice!
So it is safe to say that term is almost always the cheaper alternative.
Some Options (Riders) You May Want In A Term Policy
Here are some useful options that may come with your term policy. They can make the policy more valuable and useful to some people.
- Level Premiums – Is your quote guaranteed for the whole term? People assue it is, but I have seen policies where the quote is only guaranteed for 5 years out of 30. Be sure and ask if the price you pay at 35, when you take out 30 year term, will be the price you pay at 55.
- An Option To Concern To Whole Life Later – Some policies come with an option to convert to a permanent policy before the term expires. This option should clearly state that there is no need for a new health application or medical exam! If you purchase a cheap 30 year term policy at 32, it may be very handy to convert it to a smaller whole life policy at 60.
- Return of Premium Life Insurance – This option costs a bit more, but it actually refunds every dime of the premiums you pay at the end of the term. This can be a handy way to save and have coverage. For example, let us say you take out a large term policy now for $50 a month. At the end of the 30 year term, if you have kept your policy and survived it, the insurer will send you a check back for $18,000! This money could be used for retirement savings or to purchase permanent coverage on yourself. Actually, you can use the money for anything you like.
The Basics of Term Life Insurance
Hopefully, you understand the basics of term life. Also understand that term life insurance companies are different, and you can find quite a big premium spread between the major insurers. That is why it is always important to compare before you buy. We hope you take advantage of our fast and free term life insurance quotes!
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