Buying life insurance can be a daunting task with so many different types of policies available. A term life insurance policy however is ideal in many situations. It provides a simple, succinct, and affordable answer to many younger individuals and couples on a budget searching for a low cost option to provide security for their children or other beneficiaries.
Fundamentals of a Term Life Insurance Policy
A term life insurance policy is exactly what it says it is — coverage for a set period of time. The insurance policies can last anywhere from one year to thirty years, with many insurance companies offering five, ten, and twenty year options as well. Once the term is over, the policy ends, and no money is awarded to a beneficiary unless the insured has passed away.
Many term life insurance policies have the option to be renewed at the end of the time period, although for a much higher rate, and only until the insured reaches a certain age, usually between seventy-five and eighty-five. As the insured becomes older, the low cost benefits of buying a term life insurance policy diminish.
How Affordable is a Term Life Insurance Policy
A term life insurance policy is known to be the most affordable option. Instead of costing thousands a year, low cost term premiums range in the hundreds of dollars for healthy people under forty or fifty years of age. In policies lasting for twenty years or more, a fixed premium can be a great solution for people in need of cost-effective, long-term protection.
Why is term life insurance so much less expensive? There are two reasons. First, people under the age of fifty are not likely to die, meaning the life insurance company will probably never have to pay the agreed monetary benefit. Most companies will not even offer this type of insurance policy to someone over the age of sixty-five. Second, term life insurance premiums only cover the actual insurance; there is no investment money which can be taken out from the policy. Once the term has ended, so too does the exchange of money.
Tips for Buying a Term Life Insurance Policy
As much as buying a term life insurance policy is a straightforward deal, a reasonable amount of money exchanged for security for a limited number of years, there are variations in deals to be aware of. For example, a policy can have the same premium every year for the entire term, or it can increase to a fixed maximum amount during the term. Be aware of the maximum potential, as this could quickly be the cost of a policy that at first appeared extremely inexpensive.
When the insurance policy is renewed, be careful to check the specifics of the revised terms. If the insured is significantly older, the premium can be much higher than the original premium, or the affordable rate may only be in effect for the first year. Also, be wary of policies that only cover specific loss of life, such as traffic accidents and cancer. They may not be worth the low cost premiums when more expansive insurance is only slightly more.
Having an affordable option is wonderful for young people on a budget with children. The money saved on lower premiums can be used for savings, investment, or everyday needs. There is a point however when term life insurance is no longer so cost-effective. Every individual should evaluate their personal situation to decipher what is the best type of life insurance for them.
Sources:
"Term Life Insurance." (Budget Life)
"Term or Whole Life." (Smart Money, Wall Street Journal,September 29, 2000).
Brenna Coleman - Brenna is a freelance writer focusing on natural health and beauty. She has written hundreds of articles, helping readers find ways to ...
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