We all have temporary and long term needs. When you are young your need is limited but when you get married, when you have a baby, when you purchase a house or when you start a business, your needs change. Then you become responsible and think about your spouse, your child, your mortgage payment, your business, and the responsibility list grows, on and on. You know you need life insurance, just in case, but realize you can’t afford to pay a higher premium because of your financial situation. Although you love to have a permanent life insurance plan because of its cash value and many of its other long term benefits it is simply impossible to purchase s permanent life insurance plan to cover your short term needs such as mortgages, debts and other expenses because of its higher premium. Term life insurance is a solution for such a situation. Young people with a limited budget and large financial responsibility prefer term insurance because it is cheaper. However, as you get older it becomes more expensive, because with age the risk of death increases.
Term Life Insurance as the name implies is of a temporary nature. It is like leasing or renting. As long as the rent is paid and until the lease is over you have the legal right to use the property, and like that, Term Life Insurance provides coverage for a specific period of time or term as long as you pay the premium. If the insured person dies while the term insurance is in effect, the insurance company pays the beneficiary the insured amount. However, once the term is over and if the policy is not renewed, the coverage ceases. If death occurs after the coverage is over, the beneficiary will not get any benefit. You could get Term life Insurance for 5, 10, 20 or 100 years. The most common Term Life Insurance today is level term (level means the death benefit and the premium stays the same) and until the term life insurance is renewed the death benefit and premium remains the same. Convertible Term Life Insurance Policy could be converted to a Permanent Life Insurance plan within the age limit specified in the policy if the policy is active. Renewable term insurance could be renewed up to and until the age limit specified in the policy, provided the policy is active.
Term life insurance is cheaper because the insurance company only charges the cost of insurance for this kind of temporary insurance. The cost of insurance for term insurance is determined at the time of purchase based on age, smoking status and other risk factors, and the monthly or annual premium determined remains level for the period or term the client chooses, and at renewal the premium increases to the pre-determined amount as indicated in the original policy. The contract between the policy holder and the insurance company ensures the policy is renewed as originally agreed irrespective of the current health conditions of the insured as long as the policy remains active.
There are people who religiously believe in Term Life Insurance than whole life, and argue BTAID (Buy term and invest the difference) concept is the best. But there are others who strongly argue that in the long run, the BTAID strategy won’t work and permanent life insurance is the best. There is truth in both arguments, so the choice is in your hand to decide which suits you. An insurance broker can explain the advantages and disadvantages of both arguments in layman terms to help you make a decision. For a confidential, no pressure, free consultation contact us.
PROS of Term Life Insurance
- Not complex
- Peace of mind in knowing that your family is protected.
- You can afford a larger coverage
CONS of Term Life Insurance
- No Cash value
- Often times the insured outlives the insurance thus the money spent is wasted.
- When you get older, the premium becomes very expensive.