Term Life Insurance
Term lnsurance offers an affordable option for individuals seeking financial protection during significant life events. It is often used as a temporary coverage solution for a specific period. If the insured passes away within the policy term, the policy provides a death benefit to beneficiaries. Whether managing child-rearing responsibilities or handling mortgage obligations, Term Insurance can be a comforting safety net.
Types of Term Insurance
Level Term lnsurance is a type of policy in which the premium and death benefit remain the same for the policy's term. This means the death benefit stays the same regardless of when the insured person dies.
Decreasing Term lnsurance is a type of term life insurance policy that pays out a smaller amount as time passes. It's often used to cover debts that decrease over time, like mortgages, car loans, and business loans.
Renewable Term lnsurance: Allows you to renew your policy without needing a new medical exam, even if your health has changed. However, the premiums may increase with each renewal, reflecting your age and potential health risks at renewal.
Pros & Cons of Term Insurance
Pros
Cost-effective: Generally the most affordable form of life insurance, particularly for younger individuals or new parents.
Larger Death Benefit: Provides a more significant death benefit at an affordable price, which can help support children or dependents in the event of a parent’s passing unexpectedly.
Level premiums: For most policies with level premiums, the cost will not increase with age during the policy’s term, providing predictability costs.
Targeted coverage: Perfect for addressing substantial financial obligations that are set to expire, like mortgages and tuition.
Riders for flexibility: Conversion, return-of-premium, and child riders can provide flexibility and peace of mind.
Cons
No cash value: Term life insurance policies do not have a cash value component, unlike whole life insurance policies.
Limited coverage period: This policy only covers a specific timeframe, which means there may be a chance that the death benefit will not be paid out if the insured survives the policy term.
High lapse rate: Many term policies never pay out a death benefit because policyholders allow their policies to lapse by failing to pay their premiums rather than outliving them term.
Term Rider
A Term Rider on a permanent life insurance policy provides extra financial protection for the policyholder's beneficiaries. It can be used to increase the death benefit for a specified period. When adding a Term Rider to a permanent life insurance policy, you’ll choose a term length, usually between 10, 20, or 30 years.
For instance, your base whole life policy may include a death benefit of $100,000 that will be paid out regardless of when you pass away. You could add a term life insurance rider that enables an extra $100,000 to be paid out if you die within the first 20 years of the policy.