The purpose of life insurance is to provide your family with a financial
safety net. Should tragedy strike, a life insurance policy may give your
loved ones the means to maintain their standard of living and to meet
ongoing and future financial obligations, such as mortgage payments or
According to the New York State Department of Insurance, there are two
types of life insurance: term and permanent plans. While both forms of life
insurance may offer your family financial protection, term insurance has
comparatively inexpensive premiums and gives you the flexibility to buy
coverage for the length of time it is needed.
Term offers more life insurance coverage for your premium dollars
A term policy could be thought of as simplified life insurance protection; it
provides a life insurance benefit, known as the death benefit, without a savings
feature. If the insured individual dies within the stated term period, the
beneficiary receives the death benefit.
Typically, term insurance is cheaper than permanent forms of life insurance
because you are only paying for "pure" life insurance coverage for a set
number of years. Unlike term, permanent life insurance includes cash value,
a savings feature, and provides insurance coverage for your entire life.
Although cash value and lifetime coverage may be beneficial for some, the
added features come at the price of higher premiums.
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Term life insurance is often more affordable than an equivalent amount of permanent
life insurance. Therefore, you can buy a larger amount of life insurance coverage
if you opt for a term policy. If you are on a limited budget, but still have a
need for life insurance, term life can provide financial protection at relatively
Along with affordable rates, term life insurance also has the benefit of level
premiums. This means your rate should remain the same for the entire policy
term--as long as you keep your policy in-force by paying on time.
Select the term length that's right for you
Term life insurance works by offering insurance protection for a set period of time;
from one to 30 years or more. Because coverage is only for a fixed amount time,
term life may be best suited for those with temporary life insurance needs.
However, temporary does not necessarily mean short-term. A temporary need could
last for a few years or may span several decades.
For example, you may want life insurance coverage to ensure that your child's
college education is paid for. You have a need for life insurance now, but you
expect that need to end or substantially diminish after graduation.
If your child is currently enrolled in college, a five-year or 10-year policy may
be sufficient. However, if your child is in grade school, you might consider a
20-year or 30-year policy instead.
Assess your life insurance needs
Although term life insurance has advantages, be sure to assess your life insurance
needs to ensure that this type of policy is right for you. Term life insurance
does not have an investment feature and only provides coverage for a predetermined
amount of time, so your coverage ends when your term expires. If your need for
life insurance will not decrease or disappear over time, you should consider whole
life insurance or another form of permanent life insurance.