The Benefits of Term Life Insurance
Life insurance. One of the most responsible purchases of our lives.
It’s probably not a conversation that everyone is excited to have , but its one that’s inevitable and every adult at one point will have it.
For that, I personally commend you. You being on this page shows that you are taking a huge step in ensuring your loved ones are in a good financial position should you no longer be around.
At this point, you likely have already heard about the various life insurance policies that are offered. One of the more common policies is called Term Life Insurance.
What is Term Life Insurance?
In short, term life insurance pays a benefit in the event that the insured passes during the specified term.
As long as the premiums are paid monthly for this policy, you will have insurance for the chosen sum and term.
Term life insurance is one of the more simple life insurance products and if used correctly can be a wonderful addition to your current plans.
It is also a very affordable policy which offers the highest benefit for the cost.
So lets get into a little more detail.
What are the Advantages of Term Life Insurance?
There are many benefits to a term life insurance policy and for that reason, it is an amazing starter life insurance policy.
In this article, we will discuss each of the following benefits and provide situations where a term life insurance policy is suitable.
Benefits of Term Life Insurance:
- It’s affordable
- It’s convertible
- High coverage
- It’s flexible
- Its simple to understand
- It’s renewable
1. It’s Affordable
One of the biggest advantages of getting a term life insurance policy is it’s cost.
For a healthy 35 year old non-smoking male, a 20 year term life policy will cost about $33.00 per month and this will provide a death benefit of $500,000.
To compare, if we input the same client and would also like $500,000 in a permanent policy, the monthly premium would be about $360.00 per month.
Although the permanent policy is a superior product, it’s simply not affordable for many families making the term insurance policy the best option.
Many young families begin with term insurance which covers their estate needs immediately at a low cost. As their budget increases, they can eventually convert their policy.
2. It’s Convertible
Along with term life insurance being budget friendly, it does offer the option to eventually convert the policy into a permanent policy should the client choose to.
Lets assume a young couple with a young child purchased a $500,000 term life insurance policy 5 years ago.
Today they realized that its a good idea to convert that policy into something more permanent. They decided to create a combination policy with $100,000 in permanent life coverage and $400,000 in term for the remaining 15 years to cover the mortgage.
This now allows the couple to have permanent policy at a good rate which the child will eventually benefit from while covering the mortgage for the remainder of the term.
3. High Coverage
A major advantage to term life insurance is the large death benefit at a very affordable rate as mentioned in the first advantage.
Clients can insure themselves (Ex: husband and wife) for a million dollars each at a very low rate. Permanent policies would be much more expensive at the same coverage.
Having such high benefits at affordable rates are perfect for families looking to insure their mortgage.
Term life insurance can be used as mortgage insurance which is much better than what most banks offer.
This is also perfect for families who have a very specific plan and only want to have temporary insurance.
4. It’s Flexible
Along with the fact that most term life insurance policies are convertible, they are also very flexible.
You can purchase term life insurance for 5 years or for 30 years and generally anything in between (usually in increments of 5).
You have the choice when choosing your benefit amount from as little as $10,000 and up to millions.
You can customize it to your unique needs and convert it as they change making it a great policy for young/new families.
5. It’s Simple to Understand
Term life insurance is one of the simpler life policies to understand.
You assess your current situation, calculate your future needs, choose a term and pick your benefit amount.
The client knows the premium schedule, knows the amount that is covered and knows how long the life insurance is in place for.
As you later upgrade to more complex permanent policies, there will be a lot more to assess and understand.
The term life insurance’s simplicity makes it a fantastic way to cover your loved ones in an easy and quick way.
6. It’s Renewable
Most term life insurance policies come with a “guaranteed renewable” rider which in short means you are allowed to renew your next term without medical check until a certain age.
Lets say you purchased a 20 year term policy at the age of 29. When you turn 49, you are able to simply renew that same policy without medical check.
Disadvantages of Term Life Insurance
As we saw earlier, term life insurance is a great product for many reasons. But as with everything, it does have its drawbacks.
The biggest disadvantage to term life insurance would have to be that it is temporary insurance.
1. Term Life Insurance is Temporary
When your term is done, you have no cash value or death benefit. You are only insured during the term you selected.
An example would be purchasing a 10 year term policy for $250,000. You are insured for that $250,000 and should anything happen to you in that 10 year term, your beneficiary will receive the death benefit.
However, once that 10 years is up, you no longer have life insurance unless you choose to renew the term.
This is why it is best to convert your term life insurance policy into a permanent one or at least partially before your term is up.
This would provide you a lifetime death benefit and offer a cash value if you decide to pull it out.
2. When You Renew, Premiums Go Up
When you get your term life insurance policy, most of them come with a rider called “renewable” or “guaranteed renewable”.
This means that for a certain amount of time or until a specified age, you can keep renewing your term life insurance without medical check.
The downside is that each time you choose to renew the term, your premiums go up a lot.
For example: Leroy bought a 20 year term life insurance policy for $250,000 purchased at the age of 26 for only $15.00 per month. Once his renewal came in at the age of 46, his new premium was about $52 per month for the exact same policy.
If Leroy purchased a $250,000 whole life policy where he pays the premiums for 20 years, he would pay about $125.00 per month but at the age of 46, he would be done paying his premiums and would have the same $250,000 coverage for the rest of his life.
These two points are the major drawbacks of term life insurance policies.
This is why they make an amazing starter policy while you start your family and have to cover your immediate needs for cheap. As your budget increases, you can begin to look at other options.
Conclusion
Every product and service has it’s benefits and drawbacks.
The key to efficiently insuring yourself and family is by understanding where each policy makes most sense.
As discussed earlier, term insurance is best used when a young couple or young family is in their “growing” stage of family life.
This is a stage where budgets are very tight, perhaps they have a new mortgage and are adjusting to their new lives.
With term life insurance, you can quickly insure almost all of your assets and future income immediately for a very affordable price during the growth stage.
As you and your family pass this growing stage, you can look into converting that term policy.
The younger you are when purchasing a life insurance product the more you can expect to save.
Term policies are also perfect for those who are currently in the process of getting a mortgage. Term life insurance is a much better option compared to the banks traditional mortgage insurance and offers much more coverage.
We wish you much success in your future and are happy to see such responsible people searching for life insurance!
If you currently live in Ontario, Canada, and would like a life insurance quote, feel free to shoot me an email at filipa@pbnet.ca or fill out a life insurance quote form on my main page.
What are your thoughts? Do you think you need/don’t need life insurance? Let me know in the comments below!
