Life insurance is a necessity. This is especially true for married folks and those with children. No one wants to talk about death, but it is a reality. Unfortunately, none of us will ever get out of life alive. And no one knows when it will be their time to go. Therefore, it is extremely important to be financially prepared for when that day comes.
There are two basic types of life insurance: Whole Life and Term Life. In another post, we will focus on Whole Life. The basic gist of it is Whole Life offers a guaranteed death benefit and increases in value over time. The policy can even be cashed out prior to death, although that can be quite costly since massive fees are docked from the policy value.
Term Life insurance, on the other hand, doesn’t offer a guaranteed death benefit and cannot be cashed out prior to death. If you outlive the agreed upon maximum age of the policy, there won’t be a death benefit paid. So now you’re probably wondering why on earth anyone would purchase Term Life instead of Whole Life. There are many great reasons. Let’s take a look.
A Little for a Lot
That’s the benefit of Term Life insurance. You can get a lot of life insurance for very little. You won’t get that with a Whole Life policy. The policy doesn’t have any cash value until the insured passes away, but this is a great way to get excellent coverage at a low monthly cost. You won’t get the same amount of a death benefit on Whole Life at the prices you’ll pay for a Term Life policy.
Of course, there is risk involved with purchasing Term Life insurance. The insurance company is banking on its customers to outlive the policy so they won’t have to pay a death benefit. Many end up living many years beyond the Term Life policy and their beneficiaries are left behind with nothing. While that’s unfortunate, your goal should be to outlive the policy.
So why purchase Term Life insurance? It’s very simply. You can get plenty of coverage at a young age, which is quite beneficial to someone on a budget or early on in their career. The best part about Term Life is you aren’t stuck with that policy forever. You can convert it to a Whole Life insurance policy later on. Many start out with a Term Life policy because it is cheap and then convert it to Whole Life when they can afford to.