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Term Life Insurance is a Cheap Alternative to Whole Life Insurance

By Jay Maxwell on November 24th, 2010

Term Life Insurance: Inexpensive and Simple

Term life insurance is the most simplistic form of life insurance. As long as your temporary need for life insurance does not become permanent, term life insurance can be very affordable because it can be a fraction of the cost of whole life insurance.

Why is Term Life Insurance the Most Inexpensive Insurance Available?

Term life insurance provides coverage for a limited period of time. Term insurance policies also have fixed premium amounts and a fixed benefit or payout value. The length of this type of insurance policy ranges from one to 30 years, but most frequently a 10 or 20 year policy is purchased. Very few term policies are renewed at the end of the term, dramatically reducing the odds that insurers will have to pay a death benefit. In fact, as low as 1% of these policies actually pay a death benefit. Thus, insurance companies can charge much less for term life insurance coverage.

Why You Should Consider Term Life Insurance Coverage

Term life insurance is meant to cover debts or other financial obligations that the survivor may be held responsible for upon the death of the policy-holder, examples include:

  • Consumer debt
  • Mortgage debt
  • College tuition for dependents
  • Funeral costs
  • Mortgage costs

You can see how a 30-year term policy that coincides with your 30-year mortgage may make sense. Policies are typically purchased in five year increments from 10 to 30 year terms. There are lower terms available from one to ten years, but they are uncommon.

Types of Term Life Insurance

Decreasing term life insurance, also known as mortgage insurance, has a constant premium amount but the death benefit declines at a set rate over the course of the policy. Not many life insurance agents or life insurance brokers advocate for this policy. Since the death benefit on term life insurance is paid on less than 1% of policies, there is relatively low risk to insurers. Therefore, it does not make sense to reduce the benefit of term life insurance when the cost savings do little to justify doing so.

Aside from mortgage insurance, other forms of term insurance include:

  • Burial Insurance: A small policy designed to only cover burial expenses.
  • Group Term Life Insurance: Insurance coverage that is offered to all employees in an employer group.
  • Term to a Specified Age (65 or 95): Insurance coverage is provided till the specific age is reached
  • Return of Premium: A policy that provides a return of all or a portion of your premium in the event the policy matures with no claim. Usually the premium is higher on these policies

You will be amazed at the peace of mind you could gain from having the correct policy in place for your family's financial needs. When looking at your life insurance options consider your goals, financial needs, and any available options or riders. Comparing online life insurance rates could be very helpful in this process, visit www.compuquotes.com for free quotes.

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