Before making a decision on term life insurance you should do your due diligence to understand the pros and cons of term life insurance. Term life insurance is the most basic of life insurance coverages, but it can still be confusing for most people who are just starting their life insurance search.
Life insurance is a big decision, and as a consumer you need to be sure you know what you are purchasing, or you will never fully understand the value this policy provides to your family. When purchasing anything I like to read reviews and understand the pros and cons of the item I am buying.
The same goes for most people buying life insurance, they want to know the pros and cons of term life insurance. You must understand this list is subjective as all people view pros and cons differently. I will try to provide my own opinions and many of the similar opinions of clients I have served while working in the life insurance industry.
Before purchasing a life insurance policy I always suggest speaking with an experienced life insurance agent who can help you decide if your plan is right for your specific situation.
The most popular form of life insurance is known as term life insurance. Before you begin looking at quotes for term life insurance, it is important to learn a little about what it is and some of the options available in this insurance category. Term life insurance is a relatively straightforward product which can protect yourself, family, and business in the event a tragedy occurs.
There are two very different types of life insurance products consumers can choose from: term life and permanent life insurance. While both of these contracts are designed to pay beneficiaries a death benefit in the event of the insured’s death, the policies are different in a number of ways. Knowing the differences between term and permanent life insurance can help you choose the right type of policy for your budget and your short or long-term goals.
The primary difference between term and permanent coverage is duration: term insurance is temporary. The term, which is a specified number of years, is the period of time that premiums will remain level. At the end of the policy’s term, the policy owner has the option to let the coverage expire or to re-apply for coverage at their current age. When the policyholder re-applies for coverage, any current medical conditions will be considered. Premiums will also be based at the insured’s age at the time of the new application. Permanent plans stay in force for the remainder of the person’s life, as long as the premiums are paid.
Another major difference to keep in mind is price. Term life insurance is the most popular choice for a reason. It is generally inexpensive and provides coverage for an appropriate amount of time. Term life insurance quotes can be much lower than permanent insurance quotes and offer you the best bang for you buck on immediate coverage. This is because permanent insurance includes a death benefit and the opportunity to earn cash value which can be accessed while the insured is still living. If you want to keep your premiums low, while still having coverage against the worst case scenario, term life insurance may be the better option.
If you understand the major differences between term and permanent insurance, it is time to decide what term length might be right for you should you go this route. For individuals who have a short-term need, a shorter 10-year term might be sufficient. For individuals who have just purchased a home, are in the process of having (or already have) children, or own a business, you might want to consider longer 20 or 30-year terms. Most of the leading life insurance companies in the industry offer 10, 20, and 30 year terms. Take time to consider how long it will take to payoff your debts and how long your financial obligations will exist. This will help you choose the most practical term for your specific situation. There is no need to overpay, so only get what you really need.
This is one of the most common questions asked by applicants. Some insurance agents recommend completing a life analysis needs calculation so you have a concrete number of how much coverage you will need to cover your funeral expenses, your debt, your mortgage, income replacement, and schooling expenses if you would like to help finance higher education for your children. You may also want to have life insurance strictly for legacy purposes, to gift your beneficiaries a little something extra at your passing.
Others suggest just 10x your income, or until your youngest child is at least 18. This is a fast and easy way to get an idea how much coverage your heirs would need distributed to them over the same time period, not including interest. If you have less working years remaining, perhaps only 5 years, you would only need enough to replace the 5 years worth of income.
Requesting term life insurance quotes can help you determine how much you need to budget each month for coverage. Aside from your age, there are a number of different factors that can affect your ability to find affordable coverage. Here are some factors affecting your premiums:
▪ You use or have used tobacco or tobacco substitutes
▪ Pre-existing and current medical conditions
▪ Riders that add additional features
▪ Build (height and weight)
▪ Hazardous activities
▪ Driving record
Life insurance premiums are all based on your risk to the insurance company. If you are considered a high risk applicant, your premiums may be higher than quoted after the underwriting process. Keep this in mind if you have pre-existing conditions which might affect life expectancy. Some companies are more conservative than others at covering certain types of risks. This is why it is important to work with an independent insurance agent who can find the company and policy which is best suited for your situation.
Lets get started on a positive note, and understand the pros of term life insurance.
If you ask most people why the chose term life insurance over permanent coverage they would probably say price. This is one the biggest advantages of term life insurance, it’s pretty inexpensive when compare to permanent life insurance. Since term is a temporary, worst case scenario, type of policy then it is able to be kept in an competitive price range. Many people are very surprised with how much coverage they can get with such a low monthly premium.
However, there are different prices than your basic 10- or 20-year term life policy compared to return of premium term. Make sure you get the right one for you.
This leads into my second pro, which is the large face amounts which you can get covered for. Since term life insurance is so affordable, it allows people to obtain the amount of coverage they actually need. Even though permanent life insurance is great, it often times is not affordable when you get into the high face amounts. I have been able to insure people for over $1 million in coverage for less than a dollar a day. Pretty amazing when you think about it.
Since term life insurance is locked in for a certain amount of years it allows you to budget for your specified premium for even up to 30 years. Locking in your rate for a period of time is definitely a bright spot in the pros and cons of term life insurance.
One of the main reasons why we like to suggest people start with term life insurance is because of how flexible it is. The flexibility is in the face amounts, duration of coverage, and also conversion opportunities. Term life insurance is a great starting point because it gives you the immediate coverage, while also giving you opportunities to covert to a permanent life insurance policy at some point.
As with anything, their are some downsides to term life insurance but really they aren’t as bad as some might think. Not many cons exist, just some people are more suited to another type of life insurance policy such as permanent life insurance coverage.
Term life insurance is exactly as it sounds, it’s a temporary solution. This means at some point your coverage will drastically increase in premium at the end of your term making it to expensive to keep. At this point you have aged and a new policy will be much more expensive. If you have had health issues than it will be much harder to find affordable coverage.
Unlike whole life insurance, term coverage does not have any cash value which can accessed while you are still alive. The only way any of the proceeds can be received is if the insured passes away. Some people may view this as a waste of money. However, it does help keep premiums lower.
Whether you have decided term life insurance or permanent life insurance is right for you, the next step is to get covered. To many people become obsessed with researching options and never actually take the steps to secure life insurance. If you would like to see the price differences between term and permanent life insurance than your next step is to check out our online life insurance quoting tool.