What is the Cheapest Type of Life Insurance?
filed in Insurance Advice on Jun.17, 2009
Dear Leslie,
Congratulations on your recent nuptials and the best of luck to you. I’m glad you’re looking to take care of your family from the beginning with life insurance.
In general, term life insurance is sometimes referred to as “cheap” life insurance. Term life insurance is the least expensive form of life insurance you can buy. In a nutshell, you would purchase insurance for a fixed number of years – the “term” of the insurance. Although the most popular term is twenty years, most insurance companies also offer ten and fifteen year terms. Some also offer thirty year terms for people under forty years of age.
If you die within the period of the term, your beneficiaries would receive the amount you are covered for. On the other hand, if you are still living at the end of the term, the policy would disappear and you would not have any coverage at all.
The premiums for term life insurance are a lot lower than they would be for the equivalent whole life coverage. However, there are a number of things that differentiate the two. Primarily, should you still be living at the end of your term policy’s term, your coverage would stop whereas you would own a whole life policy for your entire life. Also, there are no investment features in a term policy. It has no cash value and you cannot borrow against it.
Most term policies are level term policies. That is, the value of the policy remains constant through the life of the policy. So, if you were to have a $500,000 twenty year term life insurance policy and you died, your beneficiaries would receive the half a million dollars, whether you five years after you purchased the policy or nineteen years later.
As far as the cheapest type of life insurance goes, there’s a type of life insurance that was very popular a number of years ago that you can still get today. It’s called “mortgage decreasing term life insurance” and it is the cheapest life insurance available.
The benefits of a decreasing term life insurance policy go down as time goes on.
Why would anyone get a decreasing term life insurance policy?
These policies were very popular when low down payment home purchases for expensive homes came into vogue. For only a few dollars a month, the banks offered this insurance to guarantee that the mortgage would be paid off. The reason the value went down (and why the premiums were so little) is the more mortgage payments you make the less you owe on your home.
The sole purpose of mortgage decreasing term life insurance is to make sure that the bank is paid in the event of your death. There is little if any face value beyond what is needed to clear this debt in these policies.
On a positive note, the cheapest type of life insurance essentially guarantees that should you die your family would still have a roof over their head. With this in mind, because the payments are so minimal and the benefits are substantial, it is a type of life insurance you should consider.
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