term life insurance

The advantages of term life insurance


The advantages of term life insurance

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 college expenses.

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 inexpensive rates.

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.

Jim Sloan
Jim Sloan is a freelance writer in Reno, Nev.
New York State Insurance Department · Life Insurance Resource Center: Basic Types Of Policies · http://www.ins.state.ny.us/clife.htm
California Department of Insurance · Choosing the Appropriate Type of Life Insurance · http://www.insurance.ca.gov/0100-consumers/0060-information-guides/0020-life/life-insurance.cfm
Life and Health Insurance Foundation for Education · Term Insurance · http://www.lifehappens.org/
National Association of Insurance Commissioners · Life Insurance Buyer's Guide · http://naic.org/documents/consumer_guide_life.pdf

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