Term insurance is designed to provide temporary protection for risk of premature death and pays a benefit if the insured dies within the established term period. Term life insurance offers several advantages including inexpensive insurance costs, policy affordability, protecting your insurability and solving temporary coverage needs.
Inexpensive insurance costs
The primary advantage of term life insurance is price. The cost of a term policy is significantly lower than any other form of life insurance assuming the same age, health, lifestyle, and smoking status. The main reason for the price competitiveness of term life is that premiums are based on “pure protection costs” only. Term insurance does not build any kind of cash value so the policy owner only pays premiums to cover the costs for the insurance. Additionally, because term life policies are usually purchased to cover short term needs, most policies are discontinued or lapse prior to the death of the insured.
The affordability of term life allows individuals and families to obtain a substantially larger life insurance policy when it is needed most. In the early and even middle stages in life when the family is growing and budgets may be tight, the amount of life insurance needed is generally at its peak. In many cases, the price of universal life or whole life insurance is so expensive that the required amount of insurance cannot be afforded. Inexpensive term insurance gives you the advantage of purchasing the proper amount protection so that your family’s standard of living is not jeopardized in the event of an unexpected death.
Protecting your insurability
Most term life insurance policies offer an important feature called the conversion privilege. The conversion privilege permits a policyholder to exchange a term policy for a whole life or universal life policy without evidence of insurability. The conversion of a term policy is done at the individual’s current age and the cost to convert to permanent life insurance will be higher. The conversion privilege provides a special advantage in situations where health changes impact an individual’s ability to get competitively priced insurance or especially when the individual is uninsurable.
Solving temporary coverage needs
A major advantage of term life insurance is that it provides the most cost effective insurance protection for a temporary need. Things such as loans, notes, mortgages and many business needs with definitive periods can easily and efficiently be protected by term insurance. For example, if you have a mortgage that has fifteen years remaining, you can buy a 15-year guaranteed term policy that will have a low rate locked in for the entire period. If the mortgage is paid off before the end of the fifteen year period, the coverage can be dropped at any time without penalty. In the unfortunate event that death occurs with the fifteen year term, the policy beneficiary receives the policy proceeds and can pay off the mortgage balance. The ability to cover temporary needs is a main reason why so many families and businesses buy term life insurance.