Should you Choose Term Life Insurance?

  • 4 min read

Term life insurance is an affordable way to provide end-of-life benefits to family or your estate. For short-term needs, it is one of the best values in the life insurance industry. Before jumping right into a policy, however, it is important to understand that there are certain issues that must be considered. Before choosing a provider or agreeing to a policy.

Consider these four key points:

#1. There is no automatic savings feature with most term life insurance policies. Most term life insurance policies are not going to build any equity with continued payments. It is not an asset that can be borrowed against because the policy will eventually expire. To have this feature with a term-life policy, you may need a contract which exceeds 15 years in length.

#2. There are few living benefits with term life insurance. Whole life insurance policies can build enough equity over time (usually 20+ years) that policy holders can stop paying into the plan because it can pay for itself. Term life insurance is very different. It remains in effect if your monthly payments are made consistently. Unless you have a long-term policy and good credit, most lenders will not look at a term life policy as collateral.

#3. The premiums of term life insurance continue to increase. As the policy holder begins to age, the monthly costs of a term life policy will continue to increase. After the age of 50, it becomes a prohibitive expense for most individuals. That’s why term life is a better option for younger individuals and families, while whole life is a better option for older individuals and families.

#4. Individuals can become uninsurable. If a term life insurance agency believes that a person’s health is too risky to insure, there isn’t a requirement to extend a policy offer. This occurs for people when they reach the later ages of life, but certain illnesses, diseases, or injuries may cause term life policies to be extremely expensive (if even offered).

#5. Coverage does not last for a person’s entire life. This type of life insurance is intended to last for a contracted period only. It is intended to serve only as a last line of financial defense against the unexpected.

Term life insurance can be an effective method of protecting your loved ones, but it isn’t right for everyone. That’s why each key point here must be carefully considered before pursuing a policy.

Term life insurance is one of the best options available today for individuals or families that have life insurance needs that are temporary or short-term. It provides the highest death benefit payouts for the lowest monthly premiums when a policy is issued for the first time.

Here are some of the additional benefits that come with owning a term life insurance policy.

#1. Proceeds from term life insurance are not part of the probate estate. Assuming the beneficiary of the policy is not the estate, the proceeds of term life insurance are paid to the beneficiary without the delays that probate can cause.

#2. Policy holders can modify their terms under some plans. You may have access to conversion features, have convertible items within a policy, or have options to lock-in monthly payments for a specific period. That makes it possible to have term life insurance evolve as your personal needs evolve.

#3. Benefit payments do not create a public record. Even if you have a 7-figure payout to a beneficiary from a term life insurance policy, the proceeds of the death benefit amount will not become a public record. If the beneficiary is someone other than the individual’s estate, there isn’t a record of who received the payment either.

#4. Many term life insurance benefits are not taxable in the United States. Although every state has different rules about receiving benefits in the US, the proceeds from a term life benefit payment are not usually subjected to Federal income tax requirements or reporting.

#5. Some term life insurance policies can be used as collateral. Long term policies sometimes may be used as collateral when taking out a personal loan. Some policies of this type even build a cash value over time like whole life insurance policies do. Most do not fit this description.

#6. Multiple beneficiaries can be named. For parents, a term life insurance policy is an easy way to make sure all their children have the funds they need later in life should something happen to them. Multiple beneficiaries can be named with specific percentages assigned to each for the payout.

Term life insurance is an easy and affordable way to provide a layer of financial protection for your loved ones. Many policies provide coverage immediately, preventing an unexpected death from causing major financial hardship to your family.

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Christopher - BSc, MBA

With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.