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Many people may not realize that an affordable alternative to costly permanent life insurance policies even exists. They hear the often steep rates that come with a permanent (or whole) life insurance policy, and think they cannot afford life insurance, and may consequently leave their dependents uncovered. But an affordable alternative does exist, and that is term life insurance.
There are two basic types of life insurance: term life insurance, where you choose the coverage amount and length of the policy; and whole or permanent life insurance (of which there are many variations), which combines an investment product with life insurance.
Below are some of the advantages to buying term life insurance:
- Whole life insurance is expensive, due mainly to its investment aspect, while term life insurance is very affordable. Whole life insurance policies often cost thousands of dollars a year, as opposed to the mere hundreds of dollars a year that the majority of term life insurance policies cost consumers. For example, if you are a healthy, non-smoking 35 year old male, you can get 10-year, $100,000 term life insurance policy for as little as $7.09 a month (or as little as $6.56 a month for a comparable female).
- Term life insurance is simple to understand, and allows for personal choice. You pay a (low) monthly premium based on the term length and amount of coverage you choose. That's it. Simple. You can choose term lengths such as 10, 20 or 30 years, and coverage amounts anywhere from $100,000 to several million dollars.
- You can invest your hard-earned money yourself, rather than having an insurance company do it for you (as with whole life insurance). Insurance companies are often very conservative with how they invest your money. If you are at all savvy in investing, or good at saving, the extra money a whole life insurance policy costs may not be for you. Instead, buy a cheaper term life policy, and invest the money you saved yourself.
- Term life insurance is good for short term needs. Two good examples of this are to cover your children's college education, and to cover your mortgage. Parents could buy a policy that expires after their children graduate from college, to ensure that the full education was paid for in case anything were to happen to the parents. Or, the main breadwinner in a house could buy a term policy that matches the length of his or her house's mortgage.
Here are some additional term life insurance tips:
- Buy enough life insurance to meet your needs; life insurance is not the place to skimp. Especially because term life insurance is so affordable.
- Also, match the term to your needs. Make sure your dependents are covered until they can provide for themselves, or that your spouse is covered until retirement income becomes available.
- Buy when you are healthy, and try to match your terms to when you will still be healthy. When you get into your 50s and 60s, it may be harder to find affordable term life insurance. So buy a term that you can renew before you get too old, or one that is long enough to cover you well into your retirement.
- Don't lie on your policy; as life insurance companies will investigate before paying. If you do not admit to a habit, behavior or health risk on your application, your beneficiaries may not receive the money after you pass away. That is the whole point of your life insurance policy, to leave money for those left behind, and it would be a shame if they didn't receive what you had paid for because you were not truthful on your application.
- Shop around for the best rates on the Internet. Term life insurance policies can vary by 50 percent for the same coverage. Compare quotes at a marketplace like the one offered at InsWeb to find the rates and policy that is right for you.
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