Advantages of Term Life Insurance

By Eric Smith

  • Overview

    Life insurance is sold in two common forms, term and permanent. Term life insurance provides a death benefit if an insured person dies during a limited time period. This limited time period is the term of coverage. Permanent life insurance provides coverage through an insured person's entire life.
  • Cost

    Term life insurance often has a lower cost than permanent life insurance. This lower cost is possible because term policies do not include several features common to permanent policies. A term insurance policyholder only pays for a defined death benefit that is payable if he dies during the term of coverage. Term insurance does not include an accumulated cash value that can be accessed by the policyholder. Term insurance policies do not allow the policyholder to take out a loan on the policy.
  • Coverage

    An individual who temporarily requires a high level of life insurance coverage can purchase term life insurance for that temporary period. After the term of coverage expires, the individual can purchase a lower level of coverage. This is an excellent feature for families. Parents may need higher coverage until their children complete college and lower coverage afterward, when they no longer need to carry extra coverage to provide for their grown children.

  • Refundable

    A term life insurance policyholder who needs to get some cash back from his policy can choose an optional form of term insurance called return of premium term insurance. After a term policy ends, the insurance company refunds the policyholder's premiums. This option increases the cost of term insurance. A policyholder can only receive a full refund of his premium payments if he maintains his coverage through the end of the policy term. If a return of premium policy is cancelled early, the policyholder will get only a partial refund of his premiums.
  • Convertible

    Some term life policies permit the policyholder to convert to a permanent life policy during the early years of his term policy. This benefit allows an insured individual to make this conversion without completing any underwriting requirements to determine insurability. Convertibility allows a policyholder to change his mind if his health declines or if he has any other life changes that make a permanent insurance policy more sensible than a term policy. A purchaser of a term policy should always look at the permanent policies that are offered by his insurance company so that he is prepared to make an unexpected conversion to permanent life insurance.
  • Riders

    Term life policies have many riders or options that are available to term insurance policyholders. These riders increase policy premiums, but may be worth the extra price. An accidental death benefit option pays an added death benefit if an insured person's death is caused by an accident. Children's term life is a rider that adds a small amount of life insurance to cover a policyholder's children. A waiver of premium option is available that continues a person's coverage if he becomes completely disabled and cannot pay his premiums.
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