What Is Basic Term Life Vs Optional Term Life?

Term life insurance is a contract between the policy owner and the insurance company. The owner agrees to pay a premium for a specific term, and in return, the insurance company promises to pay a specific death benefit to a beneficiary upon the insured’s death. The death benefit is usually tax-free. Before getting a policy, the provider assesses the risk to insure the policy owner through the underwriting process, which includes a medical exam and evaluation of occupation, lifestyle, and hobbies. The policy owner needs to choose the term length and death benefit amount and name the beneficiaries.

There are different types of term policies, and some offer optional features, such as convertibility, which allows the policy owner to change the term insurance into a permanent whole life policy later on without a new medical exam. The chart below lists some of the important differences between basic term life and whole life insurance.

Basic Term Life InsuranceWhole Life Insurance
No cash value componentCash value component
Lower premiumsHigher premiums
Fixed term lengthLifetime coverage
No investment componentInvestment component

When shopping for term life insurance, the policy owner should compare rates from different sources and consider the company’s reputation and customer reviews. It’s also essential to determine the actual need for coverage, which can be estimated using different methods, such as income replacement, debt coverage, and education expenses. A financial professional can help guide the policy owner through the process of calculating the actual need and choosing the best policy within their budget.

It’s crucial to buy life insurance as soon as possible because the longer policy owners wait, the more they’re likely to pay. Generally, when a term life policy ends, the policy owner needs to buy another policy at a higher cost or go without life insurance unless the policy has a guaranteed renewal clause. Optional features, such as convertibility, can provide flexibility and help policy owners adapt to changes in their health, lifestyle, and financial circumstances.

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