AdvantagesWhen you buy a term policy you are buying death benefit. Think of this as a purchase of money. Money for your loved ones after you are dead. This money will pay the funeral expenses. It will make the mortgage payments when you are no longer there to take care of it yourself...
In addition your term life policy will guarantee that food is always on the table for your spouse and children, it will guarantee that they will continue to wear nice clothing. Your children can continue to go to the same school...they won't need to change schools because of lack of funds. You family will continue to drive around in the same car or a better one.
Term insurance
is inexpensive insurance and most people, as long as they have an income, can afford to buy these policies.
If you, on the other hand, have a large estate, term insurance can guarantee that your estate is not depleted by
estate taxes
upon your death. Some people may prefer to buy whole life or other permanent types of insurance but the fact is that term insurance is less expensive.
Term life insurance offers you a death benefit for a specific number of years. You decide on the period at the time of purchase. You can buy your policy for 1 year, 5 years, 10 years, 15 years, 20 years, 25 years or 30 years. Some life insurance companies offer policies that last to age 65, age 80, age 85, age 90 or age 95.
Although the premiums for term policies are usually
level
you may find some with a premium that increases at certain points during the life of the policy. The
yearly renewable term Insurance policy
, for example, has a premium that increases every year.
The death benefit of these policies usually remain level except for the
decreasing term policy
. This policy is usually used to take care of the amount owed on a mortgage upon the owners death. Each year the face amount of this policy decreases as the mortgage balance decreases.
Some life insurance companies allow the owners of term life policies to renew their policies after the initial term period. They usually require additional evidence of insure-ability to effect such renewals. There is usually an increase in premiums.
Term policies usually offer the privilege of converting the policies within a specific period of time...for example, a
20 year term policy
may be converted within 14 or 15 years. The policy owner can convert to any permanent life insurance policy...such as
whole life
and it's derivatives,
universal life
,
variable universal life
and
variable life.
Disadvantages
There are certain disadvantages to buying term life insurance. You have to die to win. You pay your premiums every year because you want to protect your family. This is inexpensive insurance so you had no problems with these payments. 20 years go by and you didn't die. You have nothing to get back from the life insurance company. It is a fair deal as you were only paying for death benefit.
On the other hand, had you purchased a permanent policy you could keep it forever but if you chose to stop in 20 years for example you would likely get back a good portion of the premiums you paid. If you include your
dividends
you may actually get back all your premiums at that point. Dividends are not guaranteed so the life insurance company is not allowed to project that this will happen.
Permanent policies cost more than term policies so your choice may depend on how much you are able, or are willing, to pay for your life insurance.
