Term Life Insurance Articles
Why Multiple Annual Renewable Term Life Insurance Policies Are A Poor Investment
2011-03-27
One essential reason to purchase annually renewable term life insurance is to provide financial security for very specific reasons. You may wish to make certain that your high school kid has the cash to attend college. You plan to cover those costs from your regular income, but were you to die before the son or daughter graduates, would there be enough money to pay for tuition, room and board? Annually renewable term life insurance can provide the security that those bills would be paid if you are not there to do that. But once the kid has graduated, the extra need is not there anymore, and the extra security from term life insurance is not required.
And to make the use of term life insurance more attractive is that it is the least expensive type of life insurance available. However, too much of a good thing can be expensive. The premium cost for term insurance is greater when the death benefits are smaller. For example, in the case of protecting your son or daughter's education, you could take out a term policy to cover the entire cost of a college education, or you could take out four separate policies, one for each of the four college years. Even if the total death benefit is the same in the two options, you would find that the total premium for the four separate policies would likely be twice the premium for one policy covering the entire bill.
Depending on how far in advance you are purchasing this coverage, it is almost always less expensive to purchase the term life insurance policy with the larger death benefit.
The analysis also holds true if you have other very specific needs to cover. If you want to leave your family their home with no mortgage, for example, you can purchase a term life insurance policy to provide enough cash to fully retire the mortgage. That policy will not need to be in place after the mortgage is paid off, so it is a good candidate for term insurance.
The most logical approach is to consolidate all of these specific requirements into a cohesive forecast. Permanent life insurance will probably be at the center of the plan augmented by the less expensive term life insurance policies to meet those larger needs when the kids are younger and which are no longer a problem when you reach the "empty nest" stage.
Providing for specific expenses and meeting them with a limited number of term life insurance policies to cover expenses when you are not there and available to meet them yourself is a critical part of your long term financial planning.
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One essential reason to purchase annually renewable term life insurance is to provide financial security for very specific reasons. You may wish to make certain that your high school kid has the cash to attend college. You plan to cover those costs from your regular income, but were you to die before the son or daughter graduates, would there be enough money to pay for tuition, room and board? Annually renewable term life insurance can provide the security that those bills would be paid if you are not there to do that. But once the kid has graduated, the extra need is not there anymore, and the extra security from term life insurance is not required.
And to make the use of term life insurance more attractive is that it is the least expensive type of life insurance available. However, too much of a good thing can be expensive. The premium cost for term insurance is greater when the death benefits are smaller. For example, in the case of protecting your son or daughter's education, you could take out a term policy to cover the entire cost of a college education, or you could take out four separate policies, one for each of the four college years. Even if the total death benefit is the same in the two options, you would find that the total premium for the four separate policies would likely be twice the premium for one policy covering the entire bill.
Depending on how far in advance you are purchasing this coverage, it is almost always less expensive to purchase the term life insurance policy with the larger death benefit.
The analysis also holds true if you have other very specific needs to cover. If you want to leave your family their home with no mortgage, for example, you can purchase a term life insurance policy to provide enough cash to fully retire the mortgage. That policy will not need to be in place after the mortgage is paid off, so it is a good candidate for term insurance.
The most logical approach is to consolidate all of these specific requirements into a cohesive forecast. Permanent life insurance will probably be at the center of the plan augmented by the less expensive term life insurance policies to meet those larger needs when the kids are younger and which are no longer a problem when you reach the "empty nest" stage.
Providing for specific expenses and meeting them with a limited number of term life insurance policies to cover expenses when you are not there and available to meet them yourself is a critical part of your long term financial planning.
