Term life insurance plays a critical role in offering a death benefit to beneficiaries if the policyholder dies during the tenure of the policy. With policies potentially spanning from 10 to 30 years, many individuals outlive their term life coverage. Thus, most term life insurance claims do not bear fruit as policyholders outlive their terms or stop paying their premiums leading to policy lapses.
Costs can be minimal, particularly for those who purchase early, but policyholders are not generally refunded their premium payments unless they have purchased return-of-premium rider plans. Thus, the debate on the worth of term life insurance persists.
A Penn State University study in 1993 indicated that only 1% of beneficiaries of term life insurance policies receive a death benefit. Despite the low payout rate, term life insurance can be a worthwhile investment, particularly for younger, healthier individuals. Premiums could be as little as $25 to $29 per month for a 30-year-old healthy individual with a $500,000 benefit policy. Over the 30-year term, this amounts to as little as $9,000 – much less than what the beneficiaries potentially stand to receive in case of the policyholder’s death within the tenure of the policy.
Term life insurance can offer substantial financial support to the loved ones left behind, aiding in major expenses like mortgage payments, student loans, medical debt, and even funeral expenses. Policyholders also pay for coverage against unforeseen circumstances rather than a sure-shot payout.
Towards the end of the policy term, some individuals may look for a new policy, though age or health status could affect affordability. One viable option is converting term life insurance into permanent life insurance like whole life or universal life insurance. Here, the added benefit is the absence of the need for a health examination. Although permanent life insurance costs considerably more, it incorporates a cash value portion that accumulates over time and can be used while the policyholder is alive.
Term life insurance thus safeguards family members from financial vulnerability regarding the potential loss of the policyholder's income. Even if it does not lead to a payout, the financial risk for loved ones is reduced.