1. Less expensive
On average, life insurance rates are more affordable for term than whole life insurance because term policies offer coverage for a predetermined time and do not build cash value. If you outlive the term and the policy expires, your beneficiaries don’t receive the life insurance death benefit, so it’s less of a risk to the insurer.
Whole life insurance premiums are higher because the policies build cash value over time and last until an advanced age, such as 100 or 120.
The average annual cost of a $500,000 whole life policy for a healthy 40-year-old is $5,972, according to Covr Financial Technologies, an online life insurance brokerage. To compare, the average annual cost of a $500,000, 20-year term life policy for the same applicant is $308 a year.
2. More flexible
You have many options when choosing how long your term life insurance should last. Typically, you can buy coverage for one, five, 10, 15, 20, 25 or 30 years. Policies that last for one or five years can help cover short-term debts or expenses you currently pay, like a child’s tuition. Alternatively, if you’re the breadwinner and want a policy to cover your mortgage, a 30-year term might be a better match. These needs disappear over time, and so might your need for a policy.
3. Good for young families
Because term life covers only a specific period and is generally less expensive than permanent life insurance, it’s a great choice for young families looking for temporary coverage. For example, you can buy a policy to cover the years your family relies on you financially, and lower your coverage when your children become self-sufficient.
You can also have more than one life insurance policy, tailoring the term lengths to match different needs. This strategy is often called “laddering” your life insurance.
4. Simplicity
For many people, term life insurance is a simple, affordable way to safeguard the financial health of loved ones if something happens to them. It offers pure insurance. In comparison, with whole life insurance and other permanent policies, a portion of your premium goes towards building a cash value.
Plus, term life insurance is easy to understand, which makes it simple to shop for. As long as you pay the premium, you’re covered for the duration of the policy. You need to make only three main decisions: how much life insurance coverage you need, how long you want the coverage to last and which insurer you want to do business with. Once you’ve made those choices, compare life insurance quotes to get the right coverage for you and your family.