Firstly, what is term insurance? It is actually very simple, you are covered for the “term” (number of years) specified in the insurance policy. If you die within the time period or term you will be covered. If you die after the term has expired (and you didn’t renew or get another policy) then you will get nothing.
This type of policy never achieves any investment value and is typically much cheaper than whole life policies.
Considerations When Deciding the Best Insurance Term For You
When the insurance companies price their policies, they will be using statistics showing the number of people that will die in the period of years covered (e.g. 10 years), starting at your age. The longer the term, the higher the risk that you will die within it, which will cause the premiums to increase.
If you are looking for the maximum amount of cover for the lowest premium then you should look to insure for the smallest term. This is a short-term strategy to adopt if you are very short of money for premiums. This is because the premiums will increase each time that you renew for a new period and there is always the risk that you will get some health problems that will make you ineligible for the insurance.
A more sensible long-term strategy would be to set the term of your policy for the length of time that you will really need it (perhaps the time when you will have children living at home or in full-time education). This option will still be considerably cheaper than a whole life policy for the same amount of cover.
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