3 reasons term life insurance is a better option for most people

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Why is term life insurance the right choice in most cases?


Key points

  • Term life insurance is one of two categories of life insurance.
  • Consumers must choose between long-term coverage and lifetime coverage.
  • Term life insurance is a better choice in most cases for several reasons, including lower cost.

Most people need life insurance to provide financial protection to their loved ones in the event of an untimely death. But consumers don’t have to buy any type of life insurance. Policies can be divided into two different categories: term life insurance and permanent or whole life insurance. And in the vast majority of cases, term life policies are by far the better option. That’s why.

1. Term life insurance is cheaper

The biggest reason why term life insurance is a better choice for most people is that it is much cheaper to get this type of coverage than it is to get whole life insurance. For a young and relatively healthy person, term insurance can be obtained for a few dollars a month.

Whole life coverage costs five to 15 times more than term life coverage. This added cost may put it out of most people’s budgets. Even worse, the extra cost of whole life insurance is usually not really worth paying. That’s why.

2. Most people don’t need lifetime coverage

Another big reason term life insurance is a better choice in most cases is that it’s all most people need.

You see, life insurance is meant to help surviving loved ones meet their responsibilities and maintain their standard of living after death occurs. A death benefit does things like replace the deceased’s income so that the spouse can pay the bills and cover the education costs of the surviving children.

At some point in everyone’s life, however, children grow up, mortgages are paid off, and paychecks are replaced by retirement accounts that will continue to exist even if one spouse dies. Once that happens, there is no longer a need for life insurance.

With a term life policy, it is possible to only pay for coverage for a period of 10 to 30 years when it is actually needed. With whole life policies, however, premium prices are higher because consumers are buying lifetime coverage they don’t really need.

3. There are better investments

Whole life policies are more expensive not only because they provide lifetime coverage, but also because they have an investment component. The idea behind the policies is that part of the premiums are invested and the policy accumulates cash value. There are different ways in which this works depending on the type of permanent insurance, with some plans offering guaranteed returns and others offering returns based on the performance of selected investments.

Regardless of the type of whole life policy, there are often fees to cash it in and access to the money invested in it can come with many conditions attached. Returns may also be lower than would be available with other investments.

For these reasons, most people should buy cheaper term life insurance and invest the difference they would pay for life. This will likely be the best move to build wealth and provide the protection loved ones need at an affordable price.

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