Term Life Insurance – The Frugal, Smart Choice
If you’re just beginning to learn about life insurance basics, term life insurance is probably the first type of policy on which you should become educated. Not only is it the simplest and easiest to understand, the chances are good that if you have a simple situation it is probably the type of insurance you should buy to protect your family.
Perhaps you’re young and just starting a family without a lot of additional disposable income. A term life insurance policy is good for a defined a number of years, and guarantees that your heirs, otherwise known as the policy beneficiaries, are guaranteed a set amount of money, aka payoff amount or death benefit, in case you should unfortunately pass away at some point during the duration of this policy.
In return for this peace of mind, you pay a fixed monthly premium amount that normally does not vary during the length of time that the policy in effect. The most important thing to understand in buying term life insurance is that if you outlive your policy, the insurance company is obligated to pay nothing at all, neither to your heirs nor to you.
If you shop around you notice that the payoff amounts associated with monthly term premiums are really quite large sums of money relative to the premium amounts. But there’s a simple reason why you can buy so much coverage for no more than the price of a couple of movie tickets in the course of a month. That is because statistics tell us that it is very likely that the buyer of a term life insurance policy will actually outlive his or her policy. Remember that in this event, the insurance company has in effect received many years worth premiums from you, with no liability to them.
The bottom line is that since your purpose in buying insurance is simply to protect your family’s finances in the event of your premature demise, you are probably better off with term life rather than more complex forms of life insurance that will cost you more. The varieties of permanent life insurance, for example, have investment aspects to them that may or may not benefit you in the long run, but will most definitely cost you much, much more in terms of monthly premium amounts.
Unbiased experts usually tell a young person to simply buy the term life policy and handle their investments on their own by saving diligently and constructing an investment portfolio.
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