Life insurance helps ensure your family is able to maintain their standard of living and financial stability after you pass. From paying for living expenses to covering college costs, life insurance can provide your loved ones with the money they need to secure their futures. Depending on your circumstances and lifestyle, there are different types of life insurance that may suit your needs. Term life insurance, in particular, is often a great choice for those looking for affordable, temporary coverage. Read on to learn exactly what term life insurance is and its pros and cons.
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What is Term Life Insurance?
Term life insurance provides coverage for a fixed period of time. After this coverage period ends, policyholders can renew their policy on an annual basis to continue their coverage. Alternatively, policyholders may choose to upgrade their policy to a permanent, long-term policy.
Terms are typically anywhere from 1 to 30 years, and policyholders can keep renewing their policies until they turn 95. However, once the initial coverage term ends, your premium will typically increase when you renew the policy.
If the policyholder passes away during the coverage period, their beneficiaries will receive a death benefit as a lump-sum payment which can be used to pay for anything from funeral expenses and living costs to college tuition and more.
Benefits of Term Life Insurance
Term life insurance offers several advantages that make it an attractive option for buyers looking for straightforward coverage for a fixed period of time:
Term life insurance policies are typically much more affordable than whole or universal life insurance policies, particularly for younger individuals that are in good health. With term life insurance policies, young individuals can secure maximum death benefits with low up-front costs and premiums.
Permanent policies, on the other hand, are typically more expensive, as they are intended to cover individuals throughout their entire lives and include additional features, such as cash value savings accounts.
Term life insurance is ideal for individuals that need coverage for a defined period of time. Life insurance is designed to protect families in the event they lose their main source of income due to premature death, and for some people, this risk may only exist for a temporary period of time.
For example, as you grow older, life insurance may become less necessary as you build up your savings or your children grow and obtain secure careers. As a result, they may not rely on a death benefit to stay afloat. In cases like this, it may be more cost-effective to purchase a 30-year term life insurance policy rather than a whole life insurance policy.
Term life insurance is the simplest solution for individuals looking for immediate coverage. Permanent coverage requires policyholders to consider additional features like cash reserves, while term life insurance only requires you to choose a provider, term, and coverage amount. As long as you continue to pay premiums, you’ll stay covered.
Since term life insurance only offers temporary coverage, you can always upgrade to a permanent policy if your life circumstances change.
Disadvantages of Term Life Insurance
While term life insurance is great for many buyers, there are disadvantages you should be aware of before purchasing a policy:
No Cash Build Up
With whole and universal life insurance plans, policyholders can build cash value over time that can be accessed at their discretion. This means you’ll be able to get value out of the policy while you’re alive, and when you pass, your beneficiaries will receive the death benefit and the cash that you have accumulated.
Term life policies, on the other, hand, do not accumulate cash. If you outlive your term, the policy won’t pay out anything at all, meaning the premiums you’ve paid over the course of your policy term will essentially have gone to waste.
While temporary coverage can be an advantage of term life insurance, it can also be a disadvantage. It can be difficult to determine how long you’ll need life insurance coverage for, and as such, you may find that you need to continue your coverage after your initial term ends.
While you can renew your policy, your premiums may significantly increase. For example, if you purchase a 20-year policy at 30 years old while you’re in good health, your premiums may significantly increase if you renew the policy at 50 years old when your health has worsened.
For individuals looking for long-term coverage with steady premiums, whole life insurance may be the better option.
Term life insurance policies are incredibly inflexible compared to universal and whole life policies. With term life policies, your coverage period, premiums, and death benefit are set in stone and typically cannot be adjusted.
However, with universal life insurance policies, for example, policyholders can change their death benefits and monthly premiums to accommodate changes in their lifestyles and circumstances.
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Term life insurance offers comprehensive coverage for a fixed period of time. Depending on your age, career, health, and lifestyle, term life insurance may better suit your needs than permanent solutions like whole or universal life insurance. That’s why it’s important to fully understand term life insurance and its pros and cons.
At KSA Insurance, we work with residents in South Carolina and across the southeastern United States to help them find affordable life insurance that meets their needs and secures their family’s future.
Contact KSA Insurance today to request a quote and learn more about our life insurance offerings.