6 Common Misconceptions about Term Life Insurance
The Truth about Term Life Insurance Plans
If you have had reservations about buying a term life insurance plan – you’ve come to the right page! It’s likely you’ve been bombarded with information from every corner and now you’re confused and not amused.
Let’s clarify some commonly held beliefs about term life plans and life insurance in general, that might be plainly wrong!
Read on to get to the bottom of your potential misgivings:
What Is a Term Life Insurance Plan?
In a nutshell, a term life insurance plan is a type of life insurance that pays out a benefit in the unfortunate event that the policyholders dies or suffers total permanent disability.
It is purchased for a specified term i.e. for 5, 10 or 30 years and provides protection for the duration of the term.
Once the term has ended, you won’t be covered by the policy any more unless you renew the policy for the next term. It’s different from a whole life policy, which basically covers you for your whole life (typically defined as 100 years of age).
A whole life plan also happens to be more expensive than a term life plan and provides a cash value (accumulated savings), which will be discussed in detail below.
Now let’s take a look at the six common false impressions you might have about term life insurance:
1. “I don’t need it if I don’t have children”
As you try your best to scrimp and save money – you may have labelled term life insurance as unnecessary, especially if you have no children or a spouse, or others who depend on you.
But term life insurance isn’t just for those with dependents; you too can be covered with the benefits provided by most term life policies.
For instance, if you meet an accident and are left permanently disabled, the pay-out from a term life plan (with disablement benefits) can provide essential financial assistance.
2. “It’s better to buy term life insurance when I am older”
No, not really. In fact, it’s better to buy a term life plan when you are younger. This is because premiums are generally lower for young folk (e.g. from age 16 to 35).
With a term life plan purchased in your early 20s for example, you can lock in your low rates for a set number of years, and enjoy lower premiums for a longer period of time.
Buying a term life plan when you are older is still not a bad idea, but it certainly does get more expensive.
Also, you may be denied coverage if you have pre-existing health conditions.
But consider this, for life plans with guaranteed insurability, you will be allowed to renew your policy after it has expired – without having to undergo health tests to prove that you are insurable.
Do note that upon renewal of a matured term life plan, premium rates are not likely to stay the same and will generally get higher as you age.
3. “Term life premiums will be refunded if I don’t make claims”
This is not a complete myth – more a misunderstood part of term life insurance.
So will your term life policy give you a refund or bonus if you don’t make a claim on your policy before the end of the term? This depends on the terms of your own policy.
Certain term plans contain riders that will pay out a refund, sometimes even with a maturity benefit (as a bonus paid on top of the refund), if the policyholder makes no claims.
An example of this type of plan is the Term Cash Refund plan offered by Hong Leong Assurance.
| See also: What is the Right Age to Buy Life Insurance? |
4. “It’s very expensive”
In truth, term life plans are one of the most inexpensive of all life insurance products available – especially when you buy early.
Term life insurance plans are by nature, a basic form of coverage that does not allot your premium to anything but your coverage (or some fees, if applicable, i.e. commissions, etc.).
This means, there is no investment portion or other type of component that raises the premium.
This makes term life plans one of the most affordable options, when purchased at a young age.
5. “A cash value policy is much better than a term life plan”
You may have heard it touted that cash value life policies are the best of the best. But is that really true?
First off, let’s take a look at how cash value plan premiums are charged and how it benefits the policyholder. A cash value policy typically divides the premium you pay into insurance coverage and a savings or investment account.
It is considered a whole life plan that will continue to offer protection as long as premiums are paid. The good thing with this type of plan is that since it offers a savings/investment option, a cash value can be built into the policy.
This cash value can be withdrawn or even used to pay off your premiums (until the value is zero).
However, the downside to a cash value policy is that it can be significantly more expensive to maintain than a term life plan, especially in the beginning.
Moreover, you may not need a life insurance plan for the rest of your life.
Some people are looking for coverage for a certain number of years only i.e. until their children have grown or until retirement, etc.
So which is better? This comes down to the needs of the policyholder:
If you can afford a heavier premium in the initial stages and are also looking for another way to save and invest, then a cash value policy might be a better fit.
If you are younger and looking for basic life protection that is affordable right now, then a term life plan makes more sense.
On a side note, if you are unsure about which to choose, be sure to look for a ‘convertible’ plan. For instance, the ManuTerm plan by ManuLife, offers policyholders the option to convert their term plan to any permanent plan during the term of their policy and up to the age of 65 years.
What’s more, you won’t have to furnish them with proof of insurability e.g. a medical check-up to convert your plan.
6. “It’s better to buy life insurance with an agent”
If you are used to buying other types of insurance like health or auto from agents, it’s completely understandable to want to stick with the old way of doing things.
However, you could be saving more money by exploring other options, like buying online for one.
This is because when you use the services of an insurance agent, you will also essentially be paying for their commission fees.
By buying online, you could save on these fees and enjoy a more affordable plan.
You could even put what you would be paying in commissions toward more extensive coverage.
Moreover, you can buy term life plans conveniently online from sites like GoBear that offer you the tools you need to compare, review and source for the best plan for your needs!