What are the benefits of term life insurance?
For parents with young children and growing families, term life insurance is a great option to provide substantial protection for an affordable cost. Term life insurance provides protection from the unexpected, with coverage often lasting until your children reach adulthood and become self-sufficient.
The term life benefit may be equally useful to an older surviving spouse. However, other options for providing for a surviving spouse may be preferable given the higher costs of the premiums to older policyholders.
Insurance companies set a maximum age for their term life insurance coverage. This ranges from about 80 to 90 years old.
Term life insurance policies hold no value other than the beneficiaries have a guaranteed death benefit. There is no savings component as is found in a whole life insurance policy.
Term life is usually the least costly life insurance available because it offers a benefit for a restricted time and provides only a death benefit.
Most term life insurance policies expire without having to pay a death benefit to the beneficiaries, which lowers the overall risk to the insurer compared to a permanent life policy. The reduced risk allows insurers to charge lower premiums for term life insurance, although interest rates, the financials of the insurance company, and state regulations can also affect premiums.
Learn more about term vs whole life insurance! See examples, calculations and more.
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Term Life Insurance
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Whole Life Insurance
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Pros
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- less expensive than permanent insurance
- can be converted to whole life insurance
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- policy can last until death
- provides a guaranteed cash value
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Cons
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- temporary coverage
- age and health issues are considered when applying
- no cash value
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- payout is smaller than term life insurance for the price
- more expensive than term policies
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Term Life Insurance vs Universal Life Insurance
Universal life insurance is a type of permanent life insurance with a cut off age around 95 to 100 years old. With a universal life insurance policy, you can build cash value in the form of tax-deferred interest, which isn’t an option with term life. Tax-deferred interest means you wouldn’t have to pay taxes on those earnings until the money is taken out of the policy.
A universal policy also allows the insurer to change their premium and coverage without losing your policy, which you cannot do with term life insurance. Due to the flexibility of the policy, it is more expensive, while a term policy will provide more for your money because of its short-term nature.
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Term Life Insurance
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Universal Life Insurance
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Pros
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- less expensive than universal life insurance
- premiums are transparent
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- more flexibility in coverage
- provides a cash value
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Cons
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- no premium flexibility
- no cash value
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- no guarantee of death benefit
- interest rates impact premiums
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Term Life Insurance vs Permanent Life Insurance
While term life insurance provides coverage for a specified amount of time – usually from 10 to 30 years, with 20 being the most common, permanent life insurance provides lifelong protection for the insured.
A permanent life insurance policy usually comprises an insurance product coupled with a savings or investment component. Your insurance company invests part of your premium and your cash value is then built up by the accrued interest. The growth is generally tax deferred and can be accessed over the life of the policy, with some constraints.
These types of policies tend to have larger upfront costs with higher premiums due to the extended coverage period and investment component.
Learn more about life insurance for business owners or how to request an insurance quote from EGGRS.
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