Term life insurance the most popular form of life coverage purchased in the US. But what makes it so popular and why do so many people buy it? Perhaps price is the main reason. It is not just less expensive than a traditional whole-life policy. It’s substantially less expensive. Often, the difference in premium is thousands of dollars per year, and tens of thousands of dollars over your lifetime.
Although your need may be long-term (or permanent), a guaranteed-level term plan will give you the protection you need during the years you need benefits the most. If you have multiple dependents, you realize that until they are no longer reliant on your support (not just financial), there is a much greater need to educate and raise children, pay off debts, and ensure that a comfortable and safe lifestyle is maintained.
Questions You Should Be Asking
If you die, would your family have enough money to maintain the same lifestyle? Would there be enough available liquid funds to pay off immediate short-term debt such as credit card bills, funeral expenses, taxes (if due), credit card balances, college or school tuition, car payments, or other unanticipated expenses? Would other coverage be lost, such as group benefits through an employer? Would other benefits be lost, such as health insurance, dental coverage, or life insurance on a spouse and/or children?
The answers to these questions will help us customize the perfect plan solution, which often consists of a combination of term products, with different face amounts and guarantee periods. Since your financial needs and requirements periodically change (and household income), your insurance portfolio must be reactive to those changes. Updates and tweaks to the IRS tax code must also be considered when purchasing large face amounts of coverage.
The best annual cost (Preferred Plus rating) for $250,000 of term life insurance for a non-smoking healthy 40 year-old male is approximately $210-$220 per year or $18-$19 if paid monthly. This assumes no major medical conditions and the rate is guaranteed not to increase for 20 years. Raising the face amount to $500,000 would only increase the estimated annual and monthly rates to $340-$360 and $29-$31 respectively. 20-year guaranteed term plans are extremely popular. And face amounts of $1 million would also utilize economies of scale to keep premiums affordable.
A Universal Life or Whole Life insurance policy for the same amount will cost between $2,800 and $4,000 per year. Of course, the Universal Life and Whole Life policies will gradually build cash value. However, accumulating cash in your Roth IRA or 401K may prove to be the perfect companion for your term coverage. Tax consequences will vary and should be discussed with your financial advisor or licensed broker.
When To Use Permanent Policies
Whole Life, Universal Life and Variable Life insurance policies still should be considered when evaluating your personal finances. They feature certain advantages such as equity building and permanent death protection. But if accumulating cash for retirement is a priority, these types of policies, as previously mentioned, may not be the best option. Often, a blend of term and other forms of coverage are the best option.
Undeniably, term life insurance is also the simplest and purest form of insurance. If you pay the premium, the death benefit will be paid. If you don’t pay the premium, your coverage ends. There are no penalties and no outstanding taxes. The term is usually between 1 year and 20 years and almost always renewable.
Life insurance rates, unlike most other types of coverage, tend to decrease over time. Mortality table changes reflect the increased longevity, and allow you to eliminate some of the anticipated rate increases when you renew. Of course, after 20 years (or 15 years), your new rate will still increase, unless the face amount is adjusted.
Certainly, we are not suggesting that this type of coverage is the perfect fit for everyone. But it is the most efficient and inexpensive method to provide large amounts of death benefit at an affordable cost. Term insurance is also one of the most customizable types of life insurance, allowing you to buy precisely the exact amount of needed coverage.We are the nation's leading resource for affordable term life insurance plans. To instantly view, compare and apply for the best available term coverage, simply put your zip code in the “Get Free Quotes” box at the top of this page.