If you’re considering applying for a life insurance plan, you probably know by now that there are several types of insurance policies you can choose. Not only does every plan have its own benefits and downsides, but it’s sometimes hard to understand what some of the legal terms mean and how could these reflect on your choice. When picking life insurance policy, the first thing you need to decide is whether you’re gonna choose term insurance or whole life. In this article, we’ll try and explain the principle of term life insurance and some of the pros and cons of going with this option.
Term life insurance means that you’re not getting a contract that is permanent, but rather limited to a certain amount of time. Different insurance companies offer different time plans that could vary from one year to 40 or 50 years. Unlike whole life insurance, once the contract expires, your family is no longer safe if anything is to happen to you. On the other hand, that’s why this plan costs way less money than whole life. Let’s see what are the pros of term insurance:
It’s much more affordable
This is probably the number one reason people go for term insurance, and it’s perfectly understandable. The monthly rates of the insurance policy vary from person to person depending on numerous factors, but the main point is that the cost of term versus whole life could be around 10 times less. If you’re not planning on spending a little fortune on your life insurance, sticking to term would be a good idea.
With term insurance, you can get renewable and convertible life insurance policies. While you’re pretty much stuck with whole life insurance for as long as you live because the contract cancellation terms aren’t favorable, term insurance allows you to renew the contact every couple of years and to convert the policy into any other provided by your insurance company.
Premiums increase with age
The downside of term life insurance is that your premiums will increase as you get older. This is perfectly logical, as the odds of you dying increase with age, so don’t expect to pay the same rates you did when you were 30 when you enter your 60s. Depending on the type of your policy, some companies raise premiums on a yearly basis, while others do it after a certain amount of years that could vary from 5 to 30. People over 65 usually choose to switch to whole life because over that age premiums become unaffordable as they tend to go sky high.
It builds no cash value
The reason whole life is so expensive is that it not only offers a fixed amount of money paid to your heirs when you pass away, but also has an investment component in it. With term insurance, the amount of money your family will get is fixed, and there are no stocks or bonds that could be used to accumulate more money over time.