Term Life Insurance Explained: How It Differs from Other Life Insurance Types
September 27, 2023
Term life insurance offers a unique set of benefits, including budget-friendly premiums, death benefits during the policy period, and flexibility in choosing coverage terms. It plays a pivotal role in providing financial security for a specified term, effectively buying time for you and your loved ones. This article explores the world of term life insurance and why it's a smart choice for many.
Defining Term Life Insurance
Unlike whole life or universal life, term life provides coverage for a specified term. The fundamental difference between term life and other forms of life coverage lies in the lower out-of-pocket costs. Term life policies do not include cash value accumulation and investment components, which keeps premiums more affordable. Term life insurance can also be added to a base whole life policy as a rider. That way the insured can have the added protection while still accumulating cash value.
A term life insurance policy consists of several key elements:
Coverage Amount
This is the amount your beneficiaries will receive upon your death, known as the death benefit. It's essential to determine the appropriate coverage amount based on your family's financial needs and your income.
Term Length
Term life policies come in various term lengths, typically 10, 20, or 30 years. You choose the term length that aligns with your financial goals and family's needs.
Premiums
These are the regular payments you make to keep the policy in force. Term life premiums are usually lower than those of other life policy types, making them more accessible for individuals on a budget.
Renewability
Some term life policies offer the option to renew at the end of the term, though premiums may increase. This feature can be crucial if you want to extend your coverage beyond the initial term.
Benefits of a Term Life Policy
Term life offers several advantages, making it an attractive choice for many individuals and families. It is often more affordable than whole life or universal life insurance. This affordability makes it accessible to a broader range of individuals, even those on tight budgets.
In fact, LIMRA reports that the average cost of a $250,000, 20-year term policy for a healthy 30-year-old is less than $200 per year. It also guarantees your death benefit in the event of your passing during the policy term. Not only that, but term life offers you greater flexibility because you can choose the term that fits your financial needs.
Who Should Purchase Term Life Insurance?
Term life coverage is ideal for many policyholders. When you need coverage only for a predetermined period, such as the life of your mortgage, you can pay only for what you need. Term life also offers more affordability when you have a limited budget.
The good news is that the purchase of term life now does not preclude you from converting it to a whole life policy afterward--without new evidence of insurability. Many policies offer a conversion option, which is beneficial as your financial and/or your health situation changes.
You should assess your individual circumstances, budget, and financial goals as you choose your life coverage. Consulting with a financial advisor or insurance professional, such as 1891 Financial Life, can help you navigate the complexities of life insurance and select the policy that best aligns with your financial plan. This assurance provides you with the peace of mind that you need for your family.
About 1891 Financial Life
At 1891 Financial Life, we don’t just sell policies, we offer possibilities. We pride ourselves on giving back to the communities that we serve by providing quality and comprehensive insurance solutions. We are a not-for-profit life insurance Society, which means the sales from these financial service products help us to continue the good works that we do in the community.
Our mission is to provide products and benefits that assist individuals and their families in achieving financial security while helping to build strong communities by supporting volunteer programs that reflect common shared values. In 2023, 1891 Financial Life was listed by Forbes as one of "The World's Best Life Insurance Companies."