Term life insurance is a contract between a policyholder (for example, you!) and an insurance company. It states that your life insurance company will pay out agreed-upon cash benefits to the beneficiaries of your choice if you were to pass away within the term length of the policy. Term life insurance is popular due to the ease and convenience of applying for policies and its generally low-cost monthly premiums compared to other types of life insurance. A quick refresher on other types of life insurance:
Whole life insurance: this policy is designed to last a lifetime (as long as you pay your premiums) — higher monthly premiums account for the guaranteed death benefit amount and guaranteed cash values.
Universal life insurance: a form of permanent life insurance that allows for more flexibility – flexibility with premiums and you can adjust the death benefit with the potential for cash value accumulation.
Guaranteed issue life insurance: Used chiefly by seniors and people with serious health conditions, this life insurance is primarily used to help with funeral costs and associated end-of-life expenses. According to national statistics, the median cost for a funeral was $7,848 in 2021. Without life insurance benefits, families are often left to pay funeral costs out of pocket.
What happens to term life insurance at the end of the term?
Let’s say you bought a 10-year term life insurance policy and you’re coming up to the end of that decade mark. What happens to your policy if you outlive it? The policy will simply expire, and you’ll no longer have life insurance coverage unless you apply for a new policy.
One thing to consider is that lower policy premiums tend to favor younger people in good health. So a 20-year policy attained when you were 30 may have a considerably lower premium than a 20-year policy attained when you’re 50, even if it’s for the same amount of coverage.
Still, term life insurance can be worth the monthly premium payment even if you outlive your policy, simply knowing that your family could receive some financial protection if you were to pass away.
What are the pros and cons of term life insurance?
Each form of life insurance has strengths and weaknesses, depending on your budget, family situation, and priorities. It’s important to assess the unique factors of each life insurance option to determine which is the right fit for your family’s needs. Let’s take a deeper look at term life insurance benefits and drawbacks to decide, “Is term life insurance worth it?”
Pros of Term Life Insurance
Ease: Compared to other forms of life insurance, term life insurance is often considered the easiest and most convenient type of policy to apply for — you might not even need a medical exam, and you can apply online, in minutes, from wherever you are.
Budget-friendly: The ease of setting up a term life insurance policy also contributes to its affordability — some other types of life insurance include cash value, which can make those premiums more expensive than a term life premium. For example, at Bestow, rates start as low as $11/month.
Predictable: When you apply for term life insurance, you can select coverage from 10 to 30 years and choose the amount of coverage. These upfront decisions provide the predictable cost of your monthly or yearly premium cost, and some companies allow you to easily pay your premium by credit card.
No cancellation fee: Have you reconsidered your budget? You can generally cancel a life insurance policy at any time (no cancellation windows) with no fee for ending your policy. If you decide later that you want a new policy, you would need to apply again, knowing that your greater age could result in a higher monthly premium than your earlier policy.
Cons of Term Life Insurance
Temporary coverage: Unlike permanent life insurance, coverage only lasts through the length of the term you choose when selecting your policy. If your policy comes to an end, you will need to re-apply for a new policy unless your policy automatically renews.
No cash value: Again, unlike permanent life insurance, term life insurance policies do not accumulate a cash value.
Age limit: Term life insurance policy premiums get higher in correlation with a policyholder’s age at the time of purchasing a policy (for example, a 28-year-old is more likely to lock in a lower monthly premium than a 58-year-old for a policy with the same term length and coverage amount). Additionally, different insurance companies have a cut-off age where applicants at that age or older will be unable to qualify for a policy.
To determine “is term life insurance worth it for me,” it may help to compare it with another type of life insurance — whole life insurance. Term life insurance covers the policyholder for the term of the policy, while whole life insurance (a type of permanent life insurance) can provide coverage for the policyholder’s whole life.
Premium costs: Whole life insurance monthly premiums generally cost much more in comparison to the monthly premiums of term life insurance for the same amount of coverage. However, in addition to the guaranteed death benefit, they have a cash value that can be borrowed against or even cashed out if needed.
Length of policy: While a term life policy lasts the length chosen by the policyholder (between one and 30 years), a whole life policy can offer lifetime coverage.
Cash value: Term life insurance has no cash value and only pays if the policyholder were to pass away while the policy is active. Whole life insurance accumulates a cash value over time that can be borrowed against or cashed out.
Death benefit: As mentioned above, term life insurance benefits are only paid out if the policyholder passes away within the term of the policy. With a whole life policy, there can be a guaranteed death benefit, as the policy lasts for a policyholder’s lifetime (as long as the premiums are paid). If you are looking for a lower monthly premium than what you may pay for whole life insurance for some financial protection for your family if you were to pass away, Bestow can give you a free quote and most receive an instant decision. Life insurance rates start as low as $11/month with terms from 10 to 30 years.
- Term life and whole life each have their benefits, depending on a family’s budget and circumstances.