Understanding the advantages of term life insurance helps consumers make the most educated decision. Here are the major advantages that should be considered when considering term life:
- Term insurance allows a person to acquire the greatest death benefit for the lowest premium outlay when the policy is first issued. However, this does not mean that term insurance is necessarily the least expensive form of insurance over the full duration of needed coverage. Because term premiums increase at each renewal, at the later ages the premium cost will far exceed the level premium that would have been charged for a permanent life insurance policy issued at the same age as the original term policy.
- Term insurance is the best alternative for temporary life insurance needs. Usually, term insurance is the best alternative if protection is needed for less than ten years. Conversely, some form of cash value life insurance will generally be the best alternative if protection must continue for fifteen or more years. If the duration of the needed protection is between ten and fifteen years, the best alternative depends upon the facts and circumstances of the case. As a general rule of thumb, term insurance will tend to be better than cash value insurance at issue ages below age forty-five, and worse at older issue ages if the length of the need for protection is between ten and fifteen years.
- Younger persons may acquire substantial face amounts of coverage at relatively low immediate cost, perhaps more than their immediate needs, and thereby guarantee that they will have the necessary level of coverage when their needs and family obligations later increase, even if they are then uninsurable.
- The conversion feature of renewable and convertible term allows policyholders to enjoy higher death protection than they could otherwise afford and later allows them to lock-in their premiums and build cash values when their ability to pay premiums increases.
- Various types of term insurance—level, decreasing, and increasing—can be combined as riders with other types of permanent insurance to create a package that meets a person’s special death protection, savings, and affordability needs.
- Life insurance policies can be used as collateral or security for personal loans. Although lenders generally prefer permanent types of policies because of the cash values, a term policy is often sufficient if the borrower is a good credit risk, and the loan is very likely to be repaid unless he or she dies.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM