Term Life Insurance: Is It For You?

Term life insurance is the cheapest life insurance there is and as a result, it is a very popular buy. For those who don’t have the resources to buy a pricier permanent life insurance policy, it is very fortunate. However, often those who get a term life insurance policy have the wrong approach to buying life insurance and misunderstand what it is their buying. So in order for you to decide if term life insurance is for you, here is a brief guide to it.

First off, what is a term life insurance policy? You may have heard of 10-year life insurance or 30-year life insurance. The 20-year life insurance plan is the most common purchase. Essentially, a term life insurance policy is designed for a set period of time. You pay annual, and sometimes semiannual, premiums on the policy, for a specific number of years and if you happen to die during that period, your beneficiary will reap the value of the policy. If you don’t die, however, the policy simply expires and you get none of those premiums back.

Why do people want a term life insurance policy? A major reason is because they are so much more affordable than permanent policies, like whole life insurance and universal life insurance. And their low premiums are typically guaranteed to remain stable. For those who have just begun their family and can’t imagine paying high premiums on a whole life insurance plan, term life insurance is ideal. It enables people to have life insurance who need it but otherwise wouldn’t be able to get it.

But while term life insurance is better than no life insurance at all, it probably ought to be replaced by a more substantial, whole life insurance policy later down the road. In fact, the earlier one can invest in a permanent policy, the better. Higher premiums may be intimidating, but they will be worth it later.

Here’s why. A permanent life insurance policy, no matter what type – whole, universal, or variable, is more complicated than a term life insurance policy. This is because one simply doesn’t pay premiums that may or may not materialize as a death benefit later. Instead, the premiums are invested into all kinds of vehicles, from stocks to bonds to mortgages, yielding often significant returns that either pay toward the premiums or go into a cash account. A whole life insurance policy, as well, is not temporary. It does not expire. Not to mention, there are often other benefits and discounts included in it that term life insurance just doesn’t offer. When you die, your beneficiary will get not only the basic value of your policy, but the returns on the investments made over the years.

Recently, however, there has been a new kind of term life insurance, called return of premium (ROP) term life insurance, and it has a feature characteristic of a whole life insurance policy. It is still temporary, but at the end of the expiration date, the insured can get the entire value of the policy returned to them. Typically, however, the premiums are higher – as your insurance company will need to invest some of your money in order to profit from your business.

A term life insurance policy is a great way to make sure that your loved ones will be okay when you die – but only for a set period of time! If you’re looking for a lifelong security that also can be lucrative to your beneficiary, then it’s best to plan your finances around a sturdier permanent life insurance policy.

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