Is term life insurance a waste if you outlive your policy?
Term life insurance is a popular type of life insurance policy. Unlike whole life insurance, a term life insurance policy is not meant to provide coverage indefinitely. Instead, the policyholder’s beneficiaries are protected against financial loss for a limited period. If a term policy lasts 30 years, the policy would only pay the death benefit if the covered person died during that time. If they didn’t, coverage would end and no death benefit would ever be paid.
It can be painful to imagine paying bounties for a few decades, only to end up with nothing to show for it. As a result, many people end up wondering if term life insurance is a waste of money in the event that the covered person survives their term and the life insurance ends without payment.
In reality, however, this is an ideal outcome and most people should expect it.
Term life insurance isn’t a waste even if the death benefit doesn’t pay
When a person buys term life insurance, they do not pay premiums in order to ensure the payment of a death benefit. The money is not sent to the insurer in exchange for a future promise that a large lump sum will always go to family members.
Instead, premiums buy protection in case the unexpected happens. The money is paid with the intention of transferring the risk of premature death to the insurance company, rather than to the relatives of the family members.
Insurers actually look at data on the insured’s health, as well as actuarial projections of life expectancy, and set prices based on the likelihood that the insured will die during the term covered. If it is likely that the insurer will have to pay the death benefit, the policyholder could be denied coverage entirely or be asked to pay higher premiums, which could make the cost of the policy prohibitive.
For many people who qualify for affordable coverage, the assumption is that no death benefit will ever be paid. Cover is in place in case the worst happens, but neither the insurer nor the policyholder should expect the death benefit to be paid. It doesn’t make coverage a waste when the policy ends, any more than it’s a waste of money to have car insurance but not have an accident.
On the other hand, in the case of whole life insurance, the payment of the death benefit East assumed given, since the policy is intended to remain in force indefinitely until terminated and premiums paid. Corn whole life insurance policies are much more expensive because insurers know they will eventually have to provide beneficiaries with a large lump sum. Ironically, for most people, it’s paying those high premiums indefinitely that ends up being a waste, because for most people there comes a time when no insurance coverage is actually needed.
Who should buy term life insurance?
For most people, term life insurance is a good investment, even if the police never pay out and are unlikely ever to. Anyone who has loved ones who depend on them for goods or services would likely have to pay the affordable price necessary to protect their family from financial disaster in the event of a surprising untimely death. The price of peace of mind is worth it.
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