Low Cost Term Insurance

There may be a perception among people on a fixed income or with a limited budget that life insurance is a luxury that is only available to the wealthy. But that perception would be wrong on several counts. The most prominent of them being the fact that affordable, low-cost term life insurance was created to address the needs of the millions of people who want to protect their family but must do so inexpensively.

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Term Life Explained

Admittedly, term life insurance does not have some of the benefits of whole life, such as the creation of cash value. Still, term life insurance performs the same basic function as a whole policy and it is very easy to understand and use. Term life policies can last anywhere from 1 year, to 5, to 10, to 20, to 30, all the way up to 40 years. During the length of the term the insured pays into the policy and their life will be insured for the amount (e.g. $100,000) the policy allows. If the person dies during the policy term a death benefit will be paid out based on, among other things, the amount of time the policy has been in place. The longer the policy has been in place, the larger the pay out. When the insured outlasts the length of the term the policy is either lapsed, renewed to another term policy, or converted to a whole life policy.

Is Term Life Right for You?

So how do you know if low cost term life insurance is right for you? Consider the following:

Newly married couples are great candidates for term life insurance because they often are not at the peak of their potential but still want to protect their spouse. Likewise, new parents who want to protect their family but may not be ready for the financial commitment of whole life, tend to gravitate toward low cost term insurance.

Term life is helpful if you have just bought a new home or added significant debt to your household and do not want to put your family at the risk that would come with paying a mortgage in your absence.

As a supplement to a whole life policy, term life could be used to cover children during their college years. Business owners often take out a term life policy on employees who are critical to the success of their business.

Low cost term life has become a more attractive option for individuals who do not feel that the coverage provided by an employer is sufficient for their needs. This has become a more frequent circumstance as companies, in attempts to cut their expenses, take away benefits that were once considered commonplace.

Maximizing Your Value When Shopping for Term Life

How do you get the best value for your dollar with term insurance? Quite simply the best rates for term life insurance are for people who are young and healthy. The reason for this is that insurance companies do not expect to pay death benefits too often on young and healthy individuals. Understandably, not everyone meets that criteria, but it is the number one factor in determine the amount of money a premium will cost.

If you are someone who is not in perfect health that does not mean that you will be unable to get life insurance, you simply will not get the best rate available. But this is true of all types of life insurance, not just term. Meaning if you are in, for example, the third tier of health qualifications for term, you will be in the same tier for whole or universal. Simply because someone is able to pay the higher premium that comes with a whole life policy does not mean they will be placed in a higher tier. If you are not in your best health it will affect your premium—regardless of the type of policy you receive.

Term vs Whole Life

As you begin making comparisons of rates you will notice almost immediately how well term life stands up to whole life as an investment tool just by what it does not do. There is an extremely large gap between what it would cost for 40 year-old man to get term life versus what it would cost to get whole life. Let’s suppose that the term life policy costs $500 a year and the whole life policy costs $2500 dollars. That is a difference of two thousand dollars a year, which is an amount that will be too difficult for many people to manage. The term life policy does not tie up the insured’s money in an investment portion of the account. Maybe the twenty-five hundred dollar a year policy is too much, but the insured still has money that he would like to invest. The whole life policy doesn’t allow for that.

The low cost term insurance policy allows for smaller investors to take some of the money they saved by buying term and invest it in safe products, many of which will end up outperforming the earnings from a whole life policy anyway.

In addition, most whole life policies do not have any value until at least 10 years into their existence. Imagine you took five hundred dollars a year and invested it in a safe no-load mutual fund. It is very easy to see how you could come out ahead of what a whole life policy would generate in the long run.

Furthermore, with a term policy you don’t have to wonder whether your premium is going toward your policy or toward the interest, as you would if you had a whole life policy.

The Term Life Verdict

When you start talking to insurance agents they will want to steer you towards whole life or universal life products. The reason for this is quite simple, there are more fees attached to those than there are with term life and the agents receive a larger commission on it. While you may want to consider someday converting your term into whole or universal policy, there is no reason to feel compelled to do so right away.

By buying a solid low cost term insurance policy you will not only protect your loved ones, you will also free up your money to better investments than what whole life has to offer.

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