The two main types of life insurance are term and life. These types of plans can work perfectly in various situations but not as well in others. In particular, there are key situations where you should consider term coverage. Here are four signs you should choose term life insurance.
1. You Want Set Premiums
With a term policy, you sign up and choose a term. The term is the length of time that the insurance is active. For instance, if you sign up when you are 25 and you choose a 60 year term, you can use that policy until you are 85. If you die before that age, you get a payout, but if you live beyond that, you will need to go without coverage or extend your policy.
With term coverage, you pay the same premiums every month. To continue with the above example, you basically pay the same premium from the time you are 25 until you are 85. Note that some policies adjust premiums for inflation, but for the most part, you get set premiums with term coverage.
2. You Don't Need to Build Equity
With term life insurance, if you don't die, you don't get the payout. However, that's why the premiums tend to be so low. You have coverage if you need it; if you live, you're just paying to maintain the safety net for your own peace of mind and the financial security of your family.
Whole life insurance works differently. When you pay into whole life insurance, your policy builds equity. With most policies, you can cash them out or borrow from them in certain situations. Some people prefer that setup. Others don't need the equity so they opt for term.
3. You Want Your Family to Be Well Covered
Just as term has low premiums, it also tends to have high payouts compared to whole life insurance. If you want to ensure that your family is well taken care of without spending a lot of money on premiums, you may want to choose term.
For instance, you may want your policy to cover your kid's uni costs, pay off the rest of your mortgage, and replace your projected income from the time you die until the time you would have retired if you had lived.
4. You Are Young (or Any Age)
If you sign up for term when you are young, you tend to get relatively lower premiums. As a result, it's a great option for people in their 20s or 30s who are planning ahead. However, it can work for people of any age. Consult with a life insurance agent for more details.
Talk to an insurance broker for more information.