1 Simple Reason Term Life Insurance Makes Sense for Most People
- Consumers buying life insurance must choose between term and whole life coverage.
- Term life insurance is usually the right choice for most people.
- Term life insurance is often a better fit because it doesn't provide unnecessary protection.
Term life insurance provides affordable coverage when it's necessary.
Buying life insurance is crucial to providing for loved ones. But getting the wrong type of insurance could result in paying unnecessarily high premiums for coverage that isn't really needed.
One of the first choices most people will need to make when buying life insurance is whether to buy term life coverage or whole life coverage. For many, term life is the best choice for a simple yet important reason.
Term life insurance is often the best choice
Term life insurance works in exactly the way consumers would expect based on its name. It provides life insurance for a specific period of time -- called the term. A term can be almost any length of time, although it's usually between around 10 and 30 years.
The death benefit on the policy is paid out only if the covered person dies during the term. If the policyholder dies after, then his or her surviving family members don't receive any money from the policy. The policy simply ends (unless it's renewed or converted to a whole life plan) without a payout.
Now, this may seem like a major downside, but the reality is that a term policy is the best choice for most people simply because they only need the protection life insurance provides for a limited period of time.
Life insurance isn't meant to be a windfall for survivors that leaves them rich. The purpose of getting covered is to make sure loved ones don't suffer financial loss if the deceased must stop providing valuable services or if the deceased stops bringing income into the household. The policy provides money to replace the missed income or to pay someone to provide services.
But for the vast majority of people, eventually their families stop relying on them for income or for the performance of essential tasks. Children grow up and no longer need support, aging parents pass and no longer need a caregiver, and people build assets to support them after retiring so their income is no longer needed.
Term life insurance avoids unnecessary coverage
Once a person has reached the point where they don't have to offer services to children or parents, and where they have a nest egg so their income is no longer essential, then there's no further need for life insurance coverage. The best thing to do is to buy a term policy that lasts for as long as the policyholder believes people will be dependent on them.
By choosing term over whole life insurance, policyholders get the coverage they need without paying extra for protection that's not necessarily. Whole life policies can cost much more than term life policies because they have an investing component and because the insurer knows that eventually the death benefit will be paid out.
Unless a policyholder has a specific reason why someone will always be dependent on them -- such as if they have a disabled child who is likely to outlive them -- there's little reason to pay the added premium just to ensure a death benefit is paid out even after it's no longer needed.
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