In our last article, we discussed the essential features of the most popular life insurance plan classification: whole life insurance. We listed the benefits and drawbacks to this type of plan, and gave a picture of what families that opt for whole life insurance can expect throughout their entire lives.
Thank you for reading this post, don't forget to subscribe!The second most common life insurance plan type, term life insurance, contains similar benefits to its counterpart, with some key differences that any individual should look out for. Read on to learn more about whether or not term life insurance is right for you.
How does term life insurance work?
The essential characteristic of term life insurance can be found in its name. Term life insurance functions within “terms,” or set periods of time in the policyholder’s life. These terms can range anywhere from a single year to up to 30 years before expiring.
Should the recipient pass away during the pre-set term, beneficiaries specified at the time of purchase will receive a death benefit in their name. However, if the policyholder lives past the term, no one will receive this death benefit.
Singular benefit
Perhaps the most essential takeaway when considering term life insurance is its limited nature. Unlike whole life insurance, which includes a wider range of benefits (most notably cash value, or the amount funneled from your payments into a separate account to accrue value over time), the fixed death benefit is the sole purpose of a term life insurance plan.
Lower risk = lower premiums
Since term life insurance works within a specific time constraint, and acquiring this plan comes with the knowledge that payments will not be refunded if the policy holder does not pass away during their term, these plans tend to be less pricey than other options like whole life insurance.
How do you determine just how much premiums will cost under a term life policy? The exact price often depends on a range of risk factors, such as age and preexisting health conditions, that indicate higher or lower chances that the policy may need to take effect should the holder pass away during the set term. Premium amounts are determined based on the characteristics of the policyholder at the beginning of their term, so there is no need to worry about premiums suddenly shifting should the policyholder’s health take a turn, for example.
Who should choose term life insurance?
Term life insurance policies are a great choice for those who value flexibility, as policyholders have more control over the length of their term than they would with a different type of plan. It could also be a wise choice for families on a budget, either temporarily or for the foreseeable future. Finally, if your family is young and in good health, term life insurance may be a smart option, since the less expensive premiums would correlate with the fact that there is a lower risk to each family members’ health and livelihood. Should this change over time, the policyholder has the option to change their plan once the term expires.
In our final article in this series, we’ll tell you everything you need to know about another life insurance policy classification: universal life insurance.
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