Term Life Insurance Coverage
As more people look for life insurance plans in a struggling economy, the more affordable policies are gaining popularity at an accelerated pace. While term life insurance is certainly more affordable than its counterpart, there are some situations in which it could prove to be ideal. For example, a middle-aged man may find a term life insurance policy to be suitable, while a young adult would be taking a significant risk by purchasing a temporary (term) life insurance policy. The following paragraphs explain the difference between whole and term life insurance, while also discussing the pros and cons of term life insurance coverage.
Difference Between Whole Life Insurance and Term Life Insurance Coverage
The most significant difference between whole life insurance and term life insurance coverage is the period of time during which coverage remains active. While term life insurance coverage lasts for a predefined period of time (usually anywhere from 1 to 3 decades), whole life insurance policies do not expire until the policyholder's demise, and are therefore a much safer option. Whole life insurance policies also have an additional investment attached to them that allows the face value of the policy to continue to increase. In fact, policyholders can borrow against their whole life insurance policy in the form of a loan if needed. A whole life insurance policy would be preferred if it can be afforded. However, term life insurance policies are ideal for individuals on a budget or those that do not expect to live for more than 30 years after the activation of the policy.
Pros of Term Life Insurance Coverage
Since term life insurance provides cheaper rates and premiums it allows you to buy a policy with a larger face value than you would otherwise be able to afford. For example, a 40-year-old male that doesn't smoke could obtain a 30-year term life insurance policy with a face value of $1 million for only about $2500 per year. On the other hand, the same policy in the form of a whole life insurance policy would cost anywhere from $7500-$10,000 per year. Ultimately, if you invest the same amount of money that is saved by purchasing cheap term life insurance coverage over the years you will undoubtedly reap a better return than if you were to purchase a more expensive whole life insurance policy, as the attached investments that increase the value of a whole life insurance policy are usually low-earning, conservative instruments such as bonds.
Cons of Term Life Insurance
Unfortunately, all term life insurance coverage expires, and when it does it leaves the policyholder completely unprotected. Furthermore, once term life insurance coverage expires you'll be left starting at square one trying to find a new insurance policy, and this time around it will be much more difficult, as insurance companies are very reluctant to approve older people for life insurance policies. If you do obtain approval for life insurance policy in old age you will certainly pay a much higher yearly rate, and it will be very difficult to obtain approval for a comprehensive policy without paying a lot to do so. Also, if you do outlive your term life insurance coverage or decide to cancel it prematurely, you'll receive no compensation for all of the payments that you made over the years, and that money would be essentially wasted. In other words, it is possible to pay thousands or even tens of thousands of dollars for a term life insurance policy that will never be used. For this reason, most experts recommend purchasing a whole life insurance policy if you are under the age of 30, in order to minimize the possibility of outliving your life insurance coverage.