Knowing what type of life insurance to buy can be very confusing, so which type should you buy? Why not just buy whole life insurance and call it day? Surprisingly, there are a few reasons term life insurance is a better buy than whole. Here are the facts you need to know when deciding if term life insurance is a good purchase for you and your family.
What is term life insurance?
Just like the name implies, term stands for a certain time period. So, instead of it lasting a lifespan like whole life insurance, term life insurance lasts only a specific amount of time. Unlike whole life insurance, term doesn't accrue investment money. It is simply a way of insuring your life that is similar to other insurances you may have like homeowner's insurance and car insurance. If you die within the policies time frame, then the beneficiary will gain the amount of the policy. If you don't die during that time, the policy ends and that is it.
Who needs term insurance instead of whole?
There are a number of reasons term insurance is better than whole life. Business people will often buy a term insurance policy instead of life to secure a business loan. This guarantee's the bank will get their money for the duration of the loan. Some people buy term policies while their children are in college, and other's use it to make sure their family will maintain their lifestyle in the event of death during a specific period.
Term life insurance is also less expensive than whole life, so people will often purchase a term life for that reason. This provides stability without large monthly premiums. This type of life insurance is typically better for younger people because they will be paying a lower amount for premiums for a larger payout. Although you can buy 20 and 30 year terms, many companies won't sell you a term policy if it surpasses your 80th birthday.
Types of term life insurance
The three most common types of term life insurance are annually renewable, decreasing term and level premium. Annually renewable premiums go up each year, but level premium's start out at a higher premium, so it really depends on what you can afford. Then there are decreasing term insurances. With these, the benefit drops a certain amount each year until the term has ended.
Just keep in mind your budget, age, and reason for needing life insurance. If you can get a term for the amount of time that you need it, permanent life insurance may not be worth the premiums.