This has become the #1 Life product on the market today. The reasons are quite obvious. Because the length of the policy is for a specified period of time, ranging anywhere from one year to 30, the chances are good that you will outlive the policy. Based on those odds (called Actuarial Tables), the premiums are typically just a fraction of what you would pay for permanent insurance.
In most circumstances, after a certain age, life insurance needs are either greatly reduced, or perhaps, not even needed at all. So, term insurance makes a lot of sense.
Furthermore, with much lower premiums, you are better able to purchase what you need rather than only what you can afford.
There is no cash value built in Term Insurance. It is purely an insurance policy and is not dressed up like an investment vehicle. However, there is a new feature offered by some called "ROP" or Return of Premium. This is a rider, typically adding 30% - 50% to the premium cost. If you live to the end of the term, all the premium you have paid in, including the cost of the rider, is returned to you.
While ROP may give some people comfort to some degree, it would generally be advisable to take the extra rider money and invest it in a higher potential vehicle. ROP may sound good, but it is not likely the best use of your hard earned money.
In the General Information Section, (right hand box, top of
Life Insurance Page) under the topic of "Which Type Should I get", we discuss several instances where a permanent cash value generating style of policy would be appropriate, in fact highly recommended.
Most times however, this is not the case. The sales pitch around this style of policy typically centers around a few benefits.
There are some circumstances where this may be the right product for you. However, that is not very often. These types of policies are the
"cash cows" of the insurance industry, and that fact alone should put
you on your toes. So, be very sure of what you need before you agree to this style of life insurance.
Alternative: If you are truly looking for a way to stash money away in a tax deferred, secure, cash accumulation vehicle, then pair a term policy with an annuity. You will be far better served by this strategy, and will be able to keep your life insurance and investment vehicles separated, the way they should be. There are many reasons why an annuity is better for you. Check the Annuities Page on this site for more details.
"Whole Life" means the policy lasts until age 100. Typically, by age 100, you will have paid in an amount equal to the face value of the policy. In other words, at age 100, you are self-insured. Whole Life is very expensive. Most people cannot afford the level of insurance they really need with this kind of policy.
However, "Mortgage Life" as marketed by banks and lenders is almost always a bad deal. Typically, these are declining term policies meaning the face amount decreases as the mortgage balance is paid down, although the premiums stay the same. The beneficiary is typically the financial institution. So
you wind up paying more and more
for less and less, and someone else gets the money to boot.
Instead, include the mortgage value as part of your overall insurance coverage. Get more, and pay less.
This was the original form of life insurance, although it is not sold often these days. Insurance companies are
making much more money off Universal policies now since they get you to pay in "Excess Premium" for the investment side.
It is wise to make sure your life insurance coverage will at least pay off any unpaid mortgage balance. .
These policies are intended for people who for whatever reason, cannot qualify for any regular policy. The face amounts are generally low, typically $5,000 with some as high as $25,000. The premiums are high, and usually there is a disclaimer that if you expire within two years or less, the policy will only pay off the premiums paid in.
If you have a particular condition that would result in you being declined for a policy, or, ask you to pay an extremely high premium, it is possible that you might be able to do better. There are a few companies that specialize in the actuarial tables for specific conditions, and may issue lower cost policies. The procedure is to take a preliminary application and "shop it" for impaired risk coverage.
Generally, a total waste of your money. You should be already carrying enough insurance to protect your interests. Furthermore, many credit cards will automatically apply $100,000 of flight life insurance and no extra cost.