term life policy

Is Term Life Insurance Right For You?

A term life policy is an inexpensive form of permanent life insurance coverage that generally lasts for a predetermined period of time, typically ten, fifteen, or twenty years. Unlike whole life policies, term life policies are less costly than whole life policies. Term policies provide a death benefit that is equal to a percentage of the premium cost on the policy, and premiums can be paid annually or monthly. If a death occurs during the allotted time period, then the death benefit will be paid to the beneficiary or beneficiaries.

As with any insurance coverage, there can be elements of risk inherent in term life policy premiums. Policyholders must be aware of and understand these risks and pay accordingly. Here are some of the elements of risk involved with this type of policy.

One element of risk is that the premiums may change from year to year, as they do with most insurance policies. In addition, the premium rates for certain age groups may change. For example, the premium rates for younger adults may be higher than the rates for older individuals. The same goes for gender, as males are typically more expensive to insure than females.

Another element of risk is that term life policies do not build cash value. Therefore, if the insured dies during the allotted time period, no payments are made out of the policy. However, if the insured has not died, then the cash value of the policy may grow. This is typically done through a reduction of the face value of the policy, either by increasing the face amount or providing additional coverage. There are also some term life policies that provide flexibility by allowing policyholders to make payment of the premiums in installments over a designated period of years.

Still another factor of risk is that term life policies are not generally transferable. Unlike a whole life or other permanent life insurance policy, there is no guarantee that the death benefits will be paid out. If the insured does pass away, the family is only entitled to the premiums that remain due. Likewise, if an existing beneficiary becomes incapacitated or dies, the policy cannot be transferred to another beneficiary. As with other permanent insurance policies, if the death benefit is forfeited or if the insured does not pass away within the specified time period, the beneficiaries will not receive a payout.

One other element of risk is that term life insurance policies are not typically guaranteed issue. While most policies are guaranteed for ninety days, term life policies are typically only offered for three to four years. As a result, if the insured passes away during this period, his/her loved ones cannot collect the death benefit. Because of this, premiums can become quite high for these policies. Furthermore, most policies require that an additional twenty-one days be lapsed before they can begin to pay off death benefits, which can cause them to be more expensive. In addition, it is not uncommon for term life policies to have a short payback period, making it even more difficult to make the premium payment on time.

Finally, one more element of risk associated with term life policies is that the premiums do not grow at a compounded rate. Instead, the initial premium payment is adjusted each year, usually for inflation. This means that the death benefit and the interest from the premiums both grow at a very slow rate over time. Whole life and other permanent life policies can be quite lucrative, but term life policies are often more easily maintained, so many consumers choose them for their investment portfolios.

In general, term life policies are not as risky as other forms of permanent life insurance. The premiums are relatively low, and term policies are often easier to qualify for and maintain. However, the relatively low premiums make term life policies attractive to many consumers, especially those who don’t have a whole life policy in place yet. They are also ideal for younger individuals who may not otherwise qualify for permanent whole life policies, or for those who want to protect a relatively young budget.