Term Life Insurance: Understanding the Benefits of Term Life Insurance

Term life insurance lasts only a fixed length of time. If you die within that term, your beneficiaries receive a death benefit. If you do not, the insurance simply ends: no cash value, no savings, and no investment. But term life insurance is much cheaper than permanent ("cash-value") life insurance.

Term life insurance lets you protect your dependents. If you have young children, term life insurance is an affordable way to protect them from your untimely death. You can buy a policy that lasts until they have finished college, providing for their security during the most vulnerable part of their lives.

 

Because the chance of death is so small when you are young, insurance companies can afford to offer large amounts of insurance for a low price. And your beneficiaries are protected in the very unlikely chance of your death.

If you die during the term of your life insurance policy, your death benefit will become immediately available to your spouse and children, or anyone else you name as your beneficiary. Perhaps it will pay their college tuition, or give your spouse the freedom to stay home and be with your children while they are young. You have the comfort of knowing that their grief and sorrow at your death will not be increased by financial worries and fears.

Term life insurance does not provide the investment opportunity that permanent life insurance does. You do not build long-term savings. Permanent life insurance also gives certain tax advantages, in that the growth of your policy's cash value is tax-deferred.

 

Term life insurance does not give you tax-deferred investment growth. Finally, term life insurance gets much more expensive as you get older, since the chance of your dying during the term of the policy goes up. After a certain age, permanent life insurance may not cost significantly more than an equivalent term life insurance policy.

When you're raising young children, or paying for college, the high premiums of permanent life insurance may make it impossible to afford. But many term life insurance policies allow you to convert them into permanent life insurance policies, often without a re-evaluation of your insurability. Buying a term life insurance policy now will not only protect your beneficiaries, but may enable you to get permanent life insurance more easily once your financial situation has improved.