Term Life Insurance – The Benefits
Friday 14 May 2010 - Filed under Choosing Insurance Tips
‘What is term life insurance?’ is an important question to ask before assessing the benefits of term plans. Term life insurance – also known as ‘term insurance’ – is a life insurance contract that exists for a limited period or up to a specified age (typically below 100). It is also known as ‘pure’ life cover because there are no cash values attached to it. The limited coverage period and absence of cash values constitute the major differences between term and permanent coverage.
The benefits of these plans are related to the type of term insurance to which you refer. Term plans are quite varied; offering different terms, conditions and optional supplementary benefits (riders). There exists the belief that term life insurance is a waste of money. To the contrary, there is merit to suggestions that term life plans are sometimes as-good-as or better than permanent insurance.
1) Term plans enable you to have adequate life cover
In covering your life, it is critical to ensure that you are not significantly under-insured. If you need life cover, it is often less of a burden to use term insurance to provide full protection.
2) Term rates are very low
Life coverage does not have to be expensive. The premium rates for term plans prove this- sometimes saving clients hundreds of dollars. The other benefits listed here are merely derivatives of the low-cost benefit of term life insurance.
3) Provides coverage for short-term needs or necessities
Term insurance can be used for mortgage protection or mandatory life insurance. Sometimes life insurance is a pre-requisite for certain transactions. Imagine what it would be like if you were forced to pay the high premiums of permanent plans.The existence of term life cover ensures that you do not have to sweat to pay for life insurance that is needed only because you want something else. It also ensures that you could cover short-term needs with a short-term plan.
4) Low opportunity cost
When you purchase term life cover, you usually pay so little that you are free to use the money saved to buy other necessities. You’d have enough left over to purchase health insurance, save for retirement or choose where you invest the savings from the lower premium. Simply put, term insurance is financially liberating.
5) Simplicity
Life insurance is complicated enough to enough people in its pure form. However, term contracts are far less complicated than permanent coverage. This is because you’re just buying life cover and all that is associated with it. You don’t have to worry about ‘investment’ fees, loan provisions or a protracted policy contract that tells you what happens if you borrow your own money.
6) No surrender charges
Where there is no cash value, the insurer cannot withhold charges if you decide to discontinue paying the term plan. The policy will simply lapse. It’s nice to have the freedom of stopping a plan without having to consider how much you’ll have lost because of the prohibitive charges that an insurer may levy against you.
7) Grace periods are still in force
If you miss a term insurance premium, the plan will not lapse immediately. However, there is a ‘grace period’ (of 30 days) from the date the premium is due. Also, if your term policy lapses, you can have in reinstated within a certain period by paying the owed premiums and providing evidence of insurability.
Convertible term plans also have the benefit of being converted to a permanent insurance plan. However, not all term life insurance plans have myriad benefits. Refundable term life insurance is of dubious value since it does not offer lower term life insurance rates.
The benefits of term insurance plans also extend to the number of optional supplementary benefits (riders) that you can add. Although permanent life plans bear more ‘riders’, there are the basics like, waiver of premium and ‘Accidental Death and Dismemberment’ (ADD).
Some insurance agents and representatives believe that term insurance has few merits. This belief arises out of greed, misunderstanding or mental conditioning. The truth is that term insurance can benefit many people. Term life insurance provides options to those in need of life insurance. More than that, it often proves to be a better option!
By Darrell Victor
2010-05-14 » admin