What Makes Term Life Insurance a Wise Choice?
Term Life insurance presents a practical and cost-effective approach to safeguarding the financial future of your loved ones. By offering predetermined term durations and consistent premium payments, you can attain significant coverage while staying within your financial means.
These policies deliver crucial protecting during the years when your income is at it’s peak, and they adapt to accommodate changing requirements and financial limitations. It provides a straightforward answer to a challenging questions; how to guarantee your family’s financial security in the event of your unforeseen passing.
Determining the appropriate level of life insurance coverage is contingent on your existing financial situation, your financial objectives, and your family’s circumstances. The ideal amount varies from person to person. The primary objective of life insurance is to serve as a financial safeguard, ensuring that your loved ones are not left in financial distress in the event of your passing. Experts typically advise a coverage amount of 10-15 times your annual income, but if this doesn’t align with your budget, it’s advisable to secure a policy that fits your financial means. Even a modest life insurance policy is preferable to having none at all.
It’s Cost-Effective
Term life insurance is designed to suit a wide range of budgets. It is generally the most economical choice because it only covers you for the necessary duration, and the premiums remain consistent, ensuring your payments remain unchanged.
It’s Dependable
Term life insurance is designed to suit a wide range of budgets. It is generally the most economical choice because it only covers you for the necessary duration, and the premiums remain consistent, ensuring your payments remain unchanged.
It’s Customizable
You have the flexibility to select term lengths and coverage amounts that suit your specific situation. Additionally, you have the option to enhance your coverage with various life insurance policy riders, some of which come at no extra cost.
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Cost of Term Life Insurance
Term life insurance is typically the most budget-friendly option among life insurance plans. This is due to its focus on providing a death benefit for a specific duration and lacking the cash value element found in permanent insurance. To illustrate, according to data as of February 2023, a healthy non-smoking 30-year-old man could secure a 30-year term life insurance policy with a $500,000 death benefit for an average of $30 per month. However, by the time he reaches the age of 50, the monthly premium would increase to $138.
Benefits of Term Life Insurance
Term life insurance holds great appeal for young individuals who have children. It allows parents to secure substantial coverage at a minimal cost, and in the unfortunate event of the insured’s death during the policy’s term, the family can rely on the death benefit to replace the lost income. These policies also prove to be a fitting choice for individuals with expanding families, enabling them to maintain the necessary coverage until, for example, their children reach adulthood and become financially self-reliant.
Furthermore, the benefits of term life insurance may extend to an older surviving spouse. Nevertheless, individuals who delay applying for insurance until they are older should be prepared to pay higher premiums compared to those who secured a level-term policy at a younger age. It’s important to note that each insurance company establishes a maximum age for their term life insurance coverage, which typically falls within the range of about 80 to 90 years old.
Examples of Term Life Insurance
Johnny, a thirty-year-old, is taking steps to safeguard his family in the unlikely event of his premature passing. To do so, he has purchased a 10-year, $500,000 term life insurance policy with a monthly premium of $50.
In the unfortunate event of Johnny’s death within the 10-year term, the policy will provide his beneficiary with a payout of $500,000. However, if Johnny passes away after the policy’s expiration, there will be no benefit for his beneficiary. Furthermore, should he choose to renew the policy after the initial 10 years, the premiums will be higher because they will be calculated based on his age at that time, which will be 40.
It’s worth noting that if Johnny were to receive a terminal illness diagnosis during the first policy term, he might not be eligible to renew the policy upon its expiration. While some policies do offer guaranteed re-insurability, allowing renewal without the need for proof of insurability, such features typically come at a higher cost.
Term Life Insurance vs. Permanent Life Insurance
Key distinctions between term life insurance and permanent insurance policies (such as whole life or universal life insurance) include the policy’s duration, the accumulation of a cash value, and the associated costs. The decision that suits your circumstances will be contingent on your specific requirements.
Investment Value
Certain clients opt for permanent life insurance instead of term life insurance due to the presence of an investment or savings component within these policies. With each premium payment, a portion is earmarked for the cash value, which typically experiences growth as long as the policy is active. Some policies even distribute dividends, which can either be received as cash or retained within the policy as a deposit.
As time progresses, the cash value might accumulate to a point where it can cover the policy premiums. Additionally, there are various distinctive tax advantages associated with permanent life insurance, including tax-deferred growth of the cash value and tax-free accessibility to the cash component. Permanent insurance offers consistent performance and tax advantages, which become particularly valuable during times of stock market volatility.
Other Factors
The term versus permanent insurance debate lacks a universally applicable solution. It’s essential to contemplate other factors, such as:
- Is the investment’s rate of return appealing enough?
- Does the permanent policy include provisions like loans and other features to access cash value during your lifetime?
- Do you currently own or plan to establish a business that necessitates insurance coverage?
- Will life insurance be a part of your strategy for tax-sheltering a substantial estate?