Term life insurance is a relatively easy to understand concept. Term life insurance policies stay in effect for a predetermined length of time (the term). During the term of the policy, the insured pays a regular premium. If, at any time during the term, the insured should die, death benefits are paid directly to the designated beneficiary.
Unlike other insurance policy types, term life insurance policies offer limited flexibility. Additionally, they do not create any residual or cash value. When the term of a term life policy expires, the policy just ceases to exist-it has no additional value to the insured.
Considering some of the advantages offered by other insurance solutions, some wonder why term life insurance is attractive to many consumers. Despite its limitations and simplicity, term life insurance is actually a very sensible life insurance option for many.
For those needing temporary life insurance protection, a term life policy makes perfect sense. Often, an individual may be “between” policies due to changing career circumstances or some other reason. During the period of time when they would otherwise not be covered, a term life policy can fill the gap, providing them with a means of protecting their family’s financial interests. Others may need life insurance protection for only a designated period of time due to unique financial situations. Again, term life insurance provides a wonderful means of securing coverage over that period of time.
In other cases, one may need a hefty amount of insurance despite having limited budgets. In these cases, the relatively low premium costs associated with term life products provide a solution. One can secure significant benefit levels with premium costs that are far lower than what would be required under a whole life or other life insurance policy. This is why term policies are often popular among younger working people with families who are not yet able to invest in more expensive policies but recognize the need to protect their loved ones until their earning potential is realized.
Term life insurance can also work as supplementary protection in conjunction with another policy. For instance, an immediate need for assets may lead some to with universal policies to temporarily decrease their benefit amount or a specific period in one’s life may seem to warrant protection above and beyond that provided by existing policies. An additional term life policy can be used to increase the available benefit level at a minimal expense during these time periods.
In some cases, others will have a vested financial interest in another person for a specified period of time and may find taking out a term life insurance policy on that person provides them with necessary protection. Insurance companies, for instance, have stated that term life can be of value to employers who need to cover the life of an important employee who has a specific number of years until they retire.
Despite its limited flexibility and failure to yield investment value, term life insurance can be an ideal product for many people. There are a variety of situations that clearly justify the purchase of a term life insurance policy.