Term Life Insurance Options: Protection For the Short Term

Term Life Insurance is perhaps the most straightforward policy structure to explain to potential clients.  What it lacks as a savings and investment vehicle, it makes up for in affordability, simplicity, and efficiency.  The life of the policy is anchored in a set term with a fixed death benefit and additional options can be added to convert the policy to a permanent vehicle upon expiration.  At its core, Term Life Insurance offers the policyholder peace of mind for a reasonable price and protection for the short term.  

How Term Life Works and Why it is Inexpensive

The dominant aspect of Term Life Insurance is in its name.  A term is a set amount of years that the policyholder will be covered during.  Typical terms vary and can be:

• Termed in increments of 5 years (5,10,15, etc) up to 30-years
• Termed until the policyholder reaches a certain age
• Yearly Renewable
• Convertible to Permanent Life Insurance 

The policyholder determines how long they want to be covered and they select the amount of death benefit payout the policy will yield in the event of their passing during the term.  The death benefit payout is very flexible ranging from 25,000 to 1 million dollars.

Depending on the age and health of your policyholder, term life insurance is often many times less expensive than comparable Whole Life Insurance policies.  A typical 30-year term life policy purchased at 40 years-old could be nearly 10 times cheaper than a Whole Life policy.  So why is this?

Term Life presents a significantly smaller risk to the insurer compared to Whole Life and other vehicles.  If the policyholder passes away during the term cycle than the death benefit is paid out.  However, if the policyholder survives the term cycle then the policy is simply finished.  The policyholder does not receive any cash accumulation for the duration of the term and has essentially paid to be insured without a return of any premiums.  There are some exceptions to this but by and large, this is how term policies work.  With Whole Life Insurance, the policyholder is covered until their death, thus guaranteeing the benefits will be paid out.  This is why Term Life is so reasonably priced.  

Which Client Benefits the Most from a Term Policy?

Term Life Insurance is a good fit for people in a variety of life scenarios.  Given its affordability, Term Life makes for an easy introduction for first-time insurance buyers.  A young family can secure their income over the course of their children’s’ dependent years.  The low cost allows the client to invest more money in traditional financial vehicles that may have higher yields than Universal Life policies.  Some term policies require no medical examination, blood samples, or lab work and can be purchased and in force within days.  This convenience makes Term Insurance ideal for busy clients who simply want protection today.  A client that has a Permanent Life policy may want to purchase short term additional protection to hedge against a mortgage or a child’s college tuition.  Depending on the client’s situation there are often chapters of life where a term policy is appropriate.

The Bottom Line on Term Policies for Your Clients

Term policies are easier to sell, they offer real benefits and protection to your client, and they are extremely affordable.  With the ability to add riders that allow the policy to convert to Permanent Life down the road, Term Life is a perfect way to serve a new client while creating a lasting relationship that will be beneficial to everyone.