Term Life Insurance – What Are You Really Paying For?

Term life insurance is often called insurance in its most original form. Insurance means to pay for protection for an unexpected tragedy and that is exactly what term life insurance does. While other types of insurance do little “extras” here and there – like investment and additional coverage – term life insurance covers you for a specified purpose and nothing more. It also does not link to any investment asset so is free of any investment risks.Now, the question is if there are other more lucrative policies available, why one should go for term life at all? The answer lies in the fact that the prices are lower in comparison to whole or universal life. In term life insurance, benefits are paid only in case of death that occurs within the stipulated term and that too if the policy is in force. Besides, as there is no cash value of the policy there is no investment risk involved for the insurer and so they can afford to keep the prices down.Buying term life insurance is best if you have very specific purposes for it. For these, there are various types of insurance available in each insurance firm. Some of the more popular ones include:1. Children’s college education – this requires some accurate calculation of years to ensure that the policy2. Credit management – such as paying off student loans3. Auto insurance – which protects you in the event of an accident in a vehicle driven by you. Sometimes, it is replaced with accident insurance which, as its name implies, compensates you in the event of a motor accident.4. Fire insurance5. Household insurance – similar to property fire insurance mentioned earlier but is more comprehensive to include damages caused by theft (or attempted theft). This can be extremely helpful to reinstall home grilles and/or burglar alarms.6. Medical insurance – this covers medical procedures that need to be done as well as hospitalization costs. This is, by far, one of the most popular term life insurance taken up as it helps to defray costly medical costs for you and your loved ones.Such policies are becoming increasingly popular these days because people have started realizing their worth. More and more people are also buying term life insurance because not only they have realized the importance of buying coverage for their family, but also because insurance rates are within everybody’s reach.One of the main reasons why these prices can be kept at a much lower level than ordinary insurance is because it is a short term insurance solution to help provide death benefits. For term life insurance, death benefits can be paid out as long as the insured has updated his or her premiums and is still within the term of the insurance.In general, the insurers cover you only if you have no health problem. If you have no health problem, you are not likely to die soon. If your policy covers a short period, you are most likely to survive the term and the insurer need not pay any death benefit. You are therefore required to pay a very nominal premium. If on the other hand you buy it for, say thirty years, you may die during the term, so your term life insurance rates will be higher, but not very high because by that time you will have paid quite a lot of installments.The rates are low also because there is very little administrative cost in comparison to whole life or variable life. The latter categories have built in cash accumulation vehicles to force the insured to self-insure. This demands complicated administrative work, which in turn raises the insurance prices. At the same time, simpler administrative requirement means quicker release of benefits, if such a situation arises.Term life may not have any investment opportunity; in fact, you may lose all the money you have paid as premium if you survive the term. Yet if you want to protect your family from future financial ruin in the event of your premature death without curtailing any major expense right now, it is the most effective tool to do so. Buy term life at a reasonable rate so that the benefit they will get in the event of your death will see them through.The main downside of term life insurance is its renewal, which is treated as a new policy. This may come with slightly varied terms and conditions and premiums rates. For such insurance, you really should calculate and see if, indeed the insurance is as cost-friendly as you perceive it to be.This type of insurance gives a whole new meaning to the phrase “you get what you pay for” – it is literally so. Payouts, if any, are exactly the sum insured and not a cent more. Reasons for payouts, too, have to be as literal as stated in the policy, with no alterations, no matter how slight.