Term Life Insurance Basics
Term Life Insurance
Term insurance is designed to provide low cost temporary coverage for risk of premature death. With term life, you buy “pure” insurance protection only, and there is no “cash value” growth. Hence, term life insurance is much more cost effective over the short-run than whole life. It pays a benefit only if the insured dies during the term of the policy. When death occurs and the policy is in-force, the beneficiary collects the “face amount” of the insurance policy income tax free.
Term life insurance is offered in “fixed” term periods of 1, 5, 10, 15, 20, 25 and 30 years. The costs are generally “fixed” (level) during the initial term period as is the death benefit. After the level term period, the cost of insurance will increase as the insured gets older. Most policies require proof of “good health” in order to qualify for competitive prices after the initial premium period has expired. With increasing prices, at some point, term life insurance becomes cost prohibitive.
Advantages of Term Life
* Premium payments for term insurance are usually much lower than whole life.
* Affordability allows for increased amounts of insurance when it’s needed most.
* Great for covering temporary needs such as notes, mortgages, etc.
Disadvantages of Term Life
* Payments will increase after the initial guarantee (level) premium period.
* Cost prohibitive over the long-run.
* You can outlive the coverage.
* No cash value.