What Is Term Life Insurance?

Between whole life insurance and term life insurance, the latter is much simpler to comprehend and is also a lot easier on your pocket, at least initially. Term life insurance provides you with a cover for a certain period of time that may vary from one to twenty years depending on the policy you get. This type of insurance comes only with a death benefit and doesn't provide any cash value or tax benefits. If you survive your term then your insurance cover ceases unless you opt to renew or convert.

Who should opt for term life insurance?

Term life insurance is best for:

  • Those who are looking for a temporary insurance and does not want to get into a whole life policy.
  • Those who require to cover themselves for a large sum but only have limited financial resources.
  • People with specific needs, as for example an employer who wants to get cover for one of his most important employees who is still quite a few years from retiring.

So the people best suited for term life insurance are those who are young, healthy and can spare little on their insurance but also are in need of one.

What are the benefits?

Though different from whole life insurance term life insurance has its own set of advantages which makes it an interesting option for many.
  • Term life insurance allows you to get insurance at a very low premium. So if you need insurance you can get it even if you have financial restrictions.
  • Most insurance companies even allow you to change your policy once you are through with your term. So you can get a term life insurance now when you have less cash in hand and later convert to whole life insurance when your financial condition is more sound. Generally companies also allow you to convert to a whole life insurance plan without you having to take a medical exam.
  • Generally death benefits are exempt from taxes.

What are the drawbacks to term life insurance?

There are always a few loopholes to consider:
  • In case of a term life insurance you have to pay steeper premiums as you grow old. Things might get real tough later in life.
  • Unlike whole life insurance you don't get any cash value with term life insurance. You also don't get to enjoy any tax benefits.
  • You don't get any value for your policy once the term expires.

If you encounter health hazards during the term it becomes increasingly difficult to get new life insurance.

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