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Term Life Insurance Its Limitations And BenefitsHave you heard this one "buy term and invest the difference"? If not, then what it’s referring to is a program of buying term life insurance rather the whole life insurance, and investing the difference in the money saved on monthly premiums into an investment vehicle such as Mutual Funds. And were it not for the fact that few follow through with it, it would be a really excellent plan. As it is, a somewhat recent Harris interactive poll showed that less than a fourth of those buying term insurance actually invested any of the difference in premium. Therefore if you are looking to buy term life insurance with this plan in mind, the first two questions you need to ask yourself are: If you can’t answer both these questions with a resounding ‘yes’ then the strategy of "buy term/invest the difference" fails. This, however, does not negate the fact that term life insurance is a lot cheaper than whole life, which is as a good a reason as any to choose a term-life policy over a whole life policy. An additional advantage offered by term life insurance is that with many of the companies that offer it do not require a medical exam as a condition that has to be met before they will underwrite a policy. With term life insurance, the rate on your policy never increases and term coverage usually begins as soon as you pay your initial premium and remains good for the life of the term which can be for 5, 10, 15, 20, or even 30 years. Of course, the longer the period that is covered, the higher the premium. . Nevertheless, no matter the choice of coverage time, if the policyholder dies while the policy is in effect, than the family, or other named beneficiaries are paid the full face value of the policy. Since the length of coverage is one of the biggest determining factors of cost, the policy coverage period should be carefully considered. Let’s say that due to cost, you choose to purchase for a term of 5 years, but then at the end of the 5 years, you decide that you want to extend coverage for an additional five years, which is something that will not work to your advantage. The reason for this not being advantages is because as far as the insurance company is concerned you are now 5 years older and therefore present a greater risk, which means you will pay more for the same amount of coverage. We are by no means recommending that you buy term life insurance for a longer coverage period; we are simply stating a fact that should be considered when making your insurance decision. |