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Term life insurance policy is a type of life insurance where the insurer promises to pay death benefits to the beneficiary of an insurance policy if the policyholder dies within a specified period of time.
When is the right time to buy term life insurance coverage?
- When the need for life insurance cover is temporary. A typical example is when parents buy a non-renewable term life insurance policy for a period of 5 years in case they die within the time their child is still in college. If for whatever reason they die within the period, the death benefits from their term life insurance cover will be used by their child to himself through college.
- When you want to insure for long-term purposes but you don’t have sufficient funds to buy a whole life insurance policy you can opt for a renewable and convertible term life insurance cover. This is best for young couples because the term life insurance rate for them is much more affordable compared to what is available for seniors above 50 and 70.
What are the advantages of term life insurance policy?
- Although term life insurance policy is not the least expensive form of insurance over the period that the coverage is needed, it still allows a policyholder the opportunity to acquire the best death benefit at a very affordable life insurance rate.
- Term life insurance is the best alternative for temporary life insurance coverage.
- It gives younger people the opportunity to acquire a substantial amount of coverage at a very affordable rate
- The proceeds of the death benefit are not subject to the United States federal income taxes.
- Term life insurance coverage can be used as collateral or security for personal loans. If a policyholder dies within the period of loan repayment, the death benefit can be paid to the company that issued the loan to offset outstanding debts.
Related: Why You Need a Life Insurance?
What are the disadvantages of term life insurance policy?
- The premiums of term life insurance increase at each renewal. At the late ages, the rate will likely become higher than the level premium that would have been charged for a whole life insurance policy.
- Term life insurance has no tax-free, automatic savings feature like whole life insurance coverage does.
- There’s little or no living benefits. You can only use it to get a personal loan and never a business loan.
- Your life insurance coverage is only for a stipulated period of time.
- Term life insurance coverage is not available to people in extremely poor health conditions.