What is the number one benefit of term life insurance? It is cheaper per unit than any other life insurance policy. So, you can purchase more coverage for less money than any other type of policy.
That is just the beginning. Term insurance does not have the hidden fees that all other insurances have. Did you know that with some insurance policies, if you do not pay an increased amount every year your policy will explode and no longer be valid when you need it most? This is because the hidden fees are eating up the amount of money your policy is worth. This happens with policies that promise an investment on your money.
There are other benefits as well. When other insurance policies are sold with the promise of investment on the premiums you pay, they lead you to believe that you can borrow that money and never have to pay it back. The fact is, if you do not pay it back the face amount of your insurance policy is reduced by that amount plus the interest that has accumulated (usually from 6-8%) of your loan. So when you die, your beneficiary will receive the reduced amount. If your loan was a large one, it may leave your beneficiary to pay some of the final expenses out-of-pocket because the policy has been reduced to almost nothing. Term insurance does not have this misleading business in it. It is pure insurance that will pay exactly what it states. This is the major reason that term is less expensive than all other insurance types.
There are many riders that can be added to term insurance policies that can customize your policy to your family’s needs. Child riders, waive of premium riders, and terminal illness riders are just a few that can add benefits to your policies. The different riders depend on the insurance company you choose to go with. Child riders are pretty much self explanatory. They are to cover children in the household up to a certain age where the child has the option of taking over the policy into their adult years. Waive of premium for most companies means that if there is an illness where the person cannot pay because of disability, the premiums required are waived and the policy is considered paid up. In the case of terminal illness, if a company offers this option, is where you may take out 40% of the face amount of the policy up to $100,000. With most companies, this amount must be used for medical bills, but not all companies require that. I have found that Primerica offers this option, but allows the money to be used for anything. To determine “terminal illness” you have to be diagnosed with a terminal illness by a doctor and given a life expectancy of 6 months. If you are cured or live longer than 6 months, the money need not be paid back.
But what about the word “term?” Doesn’t that mean that it is only for a certain “term” then it is over? Yes, it does. However, what most people do not realize is that most term insurances can be renewed up to ages between 70 and 95. The other insurances cancel out at age 100, so that doesn’t leave a large difference in the time.
Have you heard of “buy term and invest the difference?” If you purchase a term policy and invest the difference between the term amount and what the other insurance would have cost, you will have accumulated enough by the time the insurance “term” date that you can choose to keep or terminate your policy. A small investment of $40-50 a month can add up to several thousands in time. This leads me to the last of my list of benefits. If you are looking for an investment in your life insurance and are determined that you need that “extra money” that the other insurance companies offer, this is the way to go about it. Purchase a low cost term insurance policy, and invest the amount you would have paid that other company in your own investment. When you die, your beneficiary can benefit from the insurance policy AND the investment. The other companies only offer one or the other. The beneficiary does not have the benefit of BOTH of them. Also, if you need that loan, you still don’t have to pay it back. In addition, your policy will not be reduced by the amount of your loan!