Quotes, qualifications, and medical exams can all make the process of choosing life insurance feel daunting. However, term life insurance can effectively be a simple product that offers some much-needed security and peace of mind.
Here’s a simple guide to the pros and cons of term life insurance.
The benefits of term life insurance
- Term life insurance is designed to offer coverage for a fixed period of time — typically between 10 and 30 years. The goal for term policies is usually to provide coverage until certain milestones are reached — children graduating college, a spouse reaching retirement age, or a mortgage being fully paid off are some common examples. A well-planned term policy could expire just as your need for it is ending.
- Term life insurance typically has affordable premiums for the coverage. While your policy is in place, term is likely to offer a great value in terms of coverage per dollar spent.
- Life insurance payouts to beneficiaries are tax-free. Having a life insurance policy is a great way to guarantee a certain payout to your beneficiaries regardless of market conditions and without having to spend a year in probate.
- Some term policies can be renewed annually or converted to a permanent life insurance policy when the term ends, allowing for a certain degree of flexibility. The exact requirements for renewals or conversion will vary from insurer to insurer.
The downsides of term life insurance
- Term life insurance is likely to require full medical underwriting. That means if you have pre-existing health conditions, you may be looking at a substantially higher premium, or even be denied the insurance policy you’re looking for.
- There’s the possibility of getting nothing for your money. In an ideal world, everyone would outlive their term life insurance — but in that best case scenario, you’re paying into a life insurance policy for 10, 20 or even 30 years without seeing a penny in return. Permanent life insurance is a different option that has a guaranteed death benefit even after a long and happy life, although it also comes with higher premiums.
- Premiums can increase over time. Level term life insurance has one premium locked in for your entire term — but if you want to renew that after your term expires, your premiums may go up. If you’re buying life insurance at a young age, locking in low whole life insurance premiums may offer more stability. Always get life insurance quotes from an agent to get the best packages.
