Term life insurance is one of the best ways to get the most bang for your buck among the different types of life insurances you can purchase.
Term life insurance, per thousand, is the cheapest type of life insurance you can buy, and there are several advantages about it you may not already know.
Why Term Life Insurance Is So Effective: It’s Cheap, For One
If you’re looking to buy life insurance for the purpose of simply having coverage in the event the unthinkable happens, term life insurance might be the only one to fit your budget.
It’s the most simple and basic kind of life insurance you can buy. You pay a set monthly premium, and the insurance company pays a set death benefit when needed, no other strings attached.
The reason it may be the best life insurance for you is because the simplicity of the product creates little premiums. Because it’s a term life policy, there is an end date, so the insurance company is able to better manage it’s risk. This means lower premiums for you.
If budget is your only concern, then term life insurance is for you.
Life Insurance Has A Tax Free Death Benefit
Term life insurance, just like any other type of life insurance, has a tax free death benefit.
Because you pay your premiums with after-tax dollars, the proceeds of the policy are paid to your beneficiaries without Uncle Sam taking a cut.
It should be noted, however, there are some instances where it can create a taxable event in other ways. For example, if you have enough assets to create a large estate, the proceeds might pay to your estate tax free, but then require estate taxes to allow your estate to be settled.
Life insurance is an instant creation of an estate, if you think about it. The moment you pass, you suddenly have a large amount of money immediately in your estate, or whoever’s estate you pass it to. If this estate is not over a certain limit, it’s tax free.
Term Life Insurance Has Guarantees Built In
When you buy life insurance, you and the insurance company are actually signing a contract.
Your part of the binding contract is to make payments. If you want to keep your policy from lapsing, also called keeping it in force, you’ll need to continue regular payments, whether it’s monthly or annually, and be on time.
Fortunately, you aren’t so bound as the insurance company. If you decide you want to change carriers, change policy type, or simply don’t need it at all, you can drop it at any time and there are no penalties.
The insurance company, on the other hand, is bound to you for as long as you make payments. If you make payments on your term policy for 30 years, the insurance company is bound to the death benefit every single year as long as your still paying.
Leverage: The Creation Of Cash
Because term life insurance buys you so much bang for your buck, literally costing you as little as pennies or fractions of pennies per thousand dollars, it’s an extreme way to leverage your cash.
Let’s say you’re young and pay $25 a month for a coverage amount of $250,000 over a period of 30 years. Each month, you’re leveraging your payment $10,000 : $1. Even if you pay all 30 years, you’ll only have paid $9,000 and the insurance company would still be on the hook for $250,000 until the day your policy ends.
Where else can you guarantee $10,000-20,000 for every $1 you put in?
Term life insurance tends to be one of the fastest paying types of life insurance.
Because it is such a simple type of policy, and there aren’t many pieces to the puzzle, the insurance company has little to debate about how much to pay you. As soon as you make the claim, there is an established obligation for them to pay you as soon as possible.
With a whole life insurance or universal life insurance policy, there can be a few lingering questions, as there are cash values, dividends, and interest rates which could affect how the death benefit actually grows. There are also considerations for policy loans which need to be paid back as well.
There are, of course, a few exceptions. For example, if someone passed due to suicide in the first few years of a policy, there may be a contestability clause within the contract which may allow the insurance company to forego payment.
The Living Benefits
Term life insurance may have some other benefits attached to the policy as well, not just a death benefit.
An example might be what is called a living benefits rider. This allows an insured to access some of the death benefit proceeds while they are still living, in the event of terminal illness.
There are usually limits, such as $25,000 up to $@250,000 on a policy, but it gives you access to a portion of the payments due to pay for medical costs or other end of life expenses.
There are also riders, which may raise your premiums, which are basically extra options you can put on your life insurance policy. Waiver of premium is a good example, which is a rider going into effect when you become disabled. At that time, it pays your policy for you until you are no longer disabled, or die, whichever comes first.
Easy Access To Term Life Insurance Quotes
Because the term life insurance market is so competitive, and there are so many carriers offering policies, it’s extremely easy to get free quotes.
Many consumers are intimidated by buying life insurance, but getting quotes from the comfort of your couch at home makes the experience a little more tolerable.
You can even purchase life insurance direct from the comfort of your couch also, as more companies evolve technologically towards what is the called the e-app, or electronic application.
This has the added advantage of giving the consumer the ability to shop for the best rates for their life insurance, as opposed to having to individually call each life insurance company to see what they offer.
The Ability To Lock In Your Rates
Term life insurance has the ability to lock in your rates for a specified amount of time, and you can tailor it to your needs.
With death benefits being guaranteed as little as one year all the way up to 40 years, you can probably find a policy to last exactly as long as you need it.
The classic example is a mortgage. If you buy a home and apply for a 30 year mortgage, you can simply buy a policy which lasts 30 years, and match it the amount of your purchase.
This has the added advantage of keeping your premiums level for however long you want. Some consumers like to know they can lock in one price for an entire contract: no hidden fees, no increases for as long as you own your insurance policy.
The Ability To Lock In Your Health
While term life insurance may not seem like the most dynamic, it does have the capacity to lock in your health.
What this means is, after you have a policy, it’s yours and nobody can modify it but you, as long as you’re the owner. Even if you bought a life insurance policy then contracted a terrible disease the following year, your health is no longer a concern.
Your health is only a major concern at the time of application, unless you need another policy. If you bought a policy with a 30 year duration, no matter your health, the policy is good and the insurance company is bound to pay as long as you make your premiums in a timely manner. If you feel your health is worthy of looking into a no medical exam life insurance policy, we can help find the best fit for you there as well.
There are guaranteed issue life insurance policies which are, as the name implies, guaranteed to be issued as long as you answer a few very, very basic questions. They might not even require an exam of any type, which could be very advantageous if you have health concerns. If you suffer from other health conditions such as someone needing life insurance during pregnancy or want to know if you can qualify for life insurance with arthritis, we can help!
Finally, most term life insurance policies now have a conversion privilege built into the policy.
This means you can freely convert your term life insurance policy into a more permanent type of life insurance, such as whole or universal life.
A couple things to keep in mind when considering a conversion are cost, conversion time periods, and conversion amounts.
The cost to convert may be high. As we mentioned, term life insurance is one of the most affordable types of insurance. By switching to a permanent product, expect to pay higher premiums because you’re not only transferring a greater level of risk to the insurance company, but you’ve aged since you purchase your term policy as well.
Some term policies might also require you to convert in a certain time frame, such as 10 years past the day you purchased your policy. Conversion amounts may also be a factor, as some companies allow you to convert small pieces, while some require the entire amount be converted.