Term life insurance is the easiest and most affordable way to protect against the financial loss of a parent.
Although term life insurance may not always be the best solution for all situations, it does have several advantages.
Term insurance provides life insurance protection for a specific period of time or term.
Some agents and advisors want you to believe whole life or permanent life insurance is superior to term life insurance. While this approach may be suitable for some families, it tends to be cost-prohibitive for most families.
Term life insurance is most often the solution to the problem most families are trying to solve:
…make sure my family has enough money if something happens to me or my spouse.
Because of this, it’s important to understand the advantages of having term life insurance.
#1 – Term Life Insurance has the Most Death Benefit at the Lowest Premium
Term life insurance is the least expensive way to buy life insurance.
Because of this, it is often the type of life insurance most people use to protect their families.
The most important component of buying life insurance coverage for family protection is having the right amount of coverage.
It has nothing to do with how long the coverage will last.
Premiums for term life insurance are calculated based on your age, health class, death benefit, and length of term when the coverage is purchased.
#2 – Term Life Insurance Premiums are Guaranteed
And you thought the only guarantees in life were death and taxes. As it turns out, so are premiums for term life insurance.
With that said, it is important to understand how term life insurance premiums work.
Let’s assume you buy a $1 million, 10-year term policy with a $380 annual premium.
The $380 annual premium is the guaranteed premium every year during the 10-year term period. It will not go up or down.
Once the 10-years is up the – coverage goes away.
No matter what happens during the term period premiums are always guaranteed.
#3 – Term Life Insurance Provides Coverage for a Specific Period of Time
Many agents and advisors compare buying term life insurance to renting a home.
It’s actually a very accurate comparison.
When you rent a home or an apartment you enter an agreement with the property owner to pay a specific monthly price for an agreed-upon term or period of time.
During this time any growth or decline in the value of the property belongs to the property owner.
When the term of the rental agreement is over you may have the option to sign a new rental agreement (usually for a higher monthly amount) or move to another property.
Similarly, insurance companies issue term life insurance policies for a specific price or premium for a specific term or period of time.
The most common terms offered by insurance companies are 10, 15, 20, 25, and 30-years. As mentioned earlier, premiums are guaranteed every year for the length of the chosen term.
#4 – Many Term Life Insurance Policies Allow You to Convert to Permanent Life Insurance
Many term life insurance policies allow the owner to convert to permanent life insurance.
The main advantage of a term life insurance conversion is that it does not require underwriting.
Because of this, people who have had a change in health or can no longer medically qualify for life insurance coverage can secure permanent coverage based on their health class when the original term insurance was purchased.
Understanding what term conversion options you have can be confusing. Call us or send a quick email to firstname.lastname@example.org if you would like us to help you understand what options are available for your specific situation.
#5 – Layering Term Life Insurance
Based on your current income, expenses, and responsibilities you will never need more life insurance than you do today.
So why should you buy coverage today that you won’t need in 10-years?
What I mean by this is the reason you are considering coverage is to make sure your family is financially protected if something were to happen to you or your spouse.
Let’s assume after considering all factors, you calculate your family needs $3 million of life insurance coverage today.
This amount is determined based on your current income, household expenses, future expenses, existing assets, etc.
Well, assuming you live and there are no other major changes, in 10-years you will have:
- Received 10-years of income,
- Paid 10-years of expenses,
- Reduced debt (hopefully), and
- Increased existing assets (e.g. retirement accounts, savings, etc.)
- Your kids will be 10-year older (maybe even moved out)
Because of this your need for coverage in 10-years will be less than it is today. Let’s say its $2 million in 10-year instead of $3 million today.
Using this example, if you layered your term life insurance policies you would have the following:
- $1 million of 10-year term coverage
- $2 million of 20-year term coverage
As a result, you would have $3 million of total life insurance coverage today that would reduce to $2 million in 10-years.
By layering your coverage and owning multiple term life insurance policies you can protect your family at a lower premium.
#6 – Term Life Insurance Is Simple
Term life insurance is an easy and inexpensive way to make sure your family is financially protected.
When raising a family, it makes sense that some or all of your life insurance coverage consists of term life insurance.
In certain cases, permanent insurance may offer benefits above and beyond term insurance.
#7 – Income Tax-Free Death Benefit
The death benefit on term and permanent life insurance is generally not subject to income tax. This is one of the many benefits offered through life insurance.
Beneficiaries usually receive death benefit proceeds within a couple of weeks of receiving a claim.
Final Thoughts on the Advantages of Term Life Insurance
Life insurance protects your family from the financial loss of a parent. It doesn’t replace them. It doesn’t make the pain go away.
Life insurance simply allows a family to cope with the loss of a loved one without having to worry about how they are going to afford their life without them.
Term life insurance is an inexpensive solution to what could be an extremely expensive problem.