No one wants to think about it, but what will happen if you die early? Will your family be financially secure? How will they be provided for? One easy — and relatively cheap — way to make sure your family will be taken care of is taking out a term life insurance policy.
When you’re young, life insurance may not seem like a big deal, but it really should be. After all, you don’t want your family to suffer any more than they have to, right? Term life insurance will help you cover your bases and continue to provide for your family even if something terrible happens and you pass away.
Term life insurance can really be summarized in four simple sections. In the following, we’ll cover everything you need to know about this type of insurance.
You get the most bang for your buck
Dave Ramsey, a financial guru who has a huge radio following, will tell you that term life insurance is the best kind of life insurance, and he’s right.
According to Ramsey, people may get sucked into the idea of “cash value” policies, but the rate of return for these policies is terrible.
With a term life insurance policy, you pay a set- relatively small amount-every month, and are covered for a certain amount of insurance.
Ramsey gives the example that a $125,000 “cash value” policy may cost up to $100 per month if you want $125,000 in coverage. It’s rate of return when you finally cash out the policy 20-plus years down the road could be as low as 2.6 percent.
On the other hand, you could get a term life policy for $125,000 worth of coverage, and it will only cost around $7 every month on average.
If you take the term life insurance route, you’ll be free to do whatever you want to with the other $93 every month, and it will be pretty easy to find a mutual fund with a much better rate of return!
You get term policies for a set amount of time
There are no tricks with term life insurance policies. Unlike with universal life insurance, variable life, and whole life, you don’t have to do any number crunching or worrying with your term life policy.
In fact, CNN says this type of policy is basic and “easy to understand.”
All you have to do is get a policy for a set number of years, pay a small, reasonable rate, and go on with life.
Most people don’t want to spend a lot of time with their calculator out, having to figure out how good of a deal they’re actually getting. With term life insurance, you don’t have to do this. All you have to know is that you’re paying a small amount so that you will be able to leave your family a huge amount if you should pass away.
You can get plans that match your exact needs
J.D. Power notes that you can get term life policies that match exactly what’s going on in your life. For example, if you just bought a house, you can get a term life insurance policy that takes the cost of the house payments into account.
Another example J.D. Power gives is if you have children and do not have a college plan set up.
Just in case something were to happen and you were to pass away, you could get a plan that would cover your children’s college expenses.
The beauty of term life insurance policies is that you can get them for varying lengths, and you can get whatever amounts you think are necessary to take care of your family and all of your family’s needs even years down the road.
One last note
If you couldn’t tell based on the above information, term life insurance policies are mostly for younger, more financially insecure people. The older you get, the harder it will be to get one of these policies.
Bankrate notes that, even if you can find a term life insurance policy in your golden years, it will probably cost quite a bit more than when you were young. It’s sad, but the reasoning behind this is that your likelihood to die goes up and up the older you get.
Thankfully, though, Dave Ramsey says most older people won’t need term life insurance, anyway, since their children are all grown up and they shouldn’t have any huge house or car payments that late in life.