Ideally, you should have your own medical and life insurance (you shouldn’t depend solely on your employee insurance coverage) as soon as you enter the workforce. Reason being, you need to have more monetary coverage for all your financial commitments including your student loan, car loan, rent or mortgage loan, home bills, helping your parents, and if you’re married, supporting your family.
After paying off all your commitments, it doesn’t leave you with a lot of money to pay for life and medical insurance policies, especially if you’ve just started working or are earning a middle-range income. This is where a term life insurance policy comes to your rescue, as it’s the cheapest way to have a basic life insurance coverage in the event of an untimely death. But is it suitable for you and your finances? We’ll explain what term life insurance is and its pros and cons for you to decide on your own.
What Is A Term Life Insurance?
A term life insurance is known as the cheapest and simplest life insurance product, and is designed specifically for those who are seeking a temporary coverage over specific financial commitments - whether it’s a debt, a loan, or as a final means to support a family after passing into the void.
In a nutshell, a term life insurance policy provides death and total permanent disability (TPD) coverages from natural and accidental causes for a specific period of time (a term) without any added cash or investment values. This means if you’ve purchased a term life insurance policy with a coverage of RM100,000, the amount will stay the same throughout your pre-specified term - or until it expires.
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If a policyholder dies before the term is over, the beneficiary - usually the parents, siblings or a spouse - receives the predetermined death benefit in full (death benefits are not taxable as income). However, if the policyholder dies after the term is over, neither you nor your beneficiary will receive anything. Learn more about term life insurance and how it works here.
Lowest monthly or annual premiums
Term life insurance is irrefutably the cheapest form of life insurance there is. It’s not difficult to find an insurance company that would offer RM500,000 term life insurance coverage at a measly RM750 a year. To further demonstrate the affordability of a term life insurance policy, lower coverage amounts (some as high as RM100,000) are easily available at as low as RM150 a year (that’s just RM12.50 a month), which is a huge bang for your buck considering the peace of mind it offers you when you’re no longer around to provide for those you care for.
The inexpensive premium makes it appealing to young working individuals who are just starting to develop their financial security or young parents who are looking to safeguard their family’s future.
Fuss-free application process
Unlike its more comprehensive counterpart, a term life insurance policy is easy to purchase. Most insurance providers offer it online, where you can purchase it after answering a series of personal and medical-related questions (honesty is the key here, you don’t want to end up with a revoked policy due to personal information discrepancies). What’s more, most term insurance policies don’t even require you to go through a medical checkup.
Flexible yet straightforward
One of the biggest appeals about a term life insurance policy is that it’s open to most everyone who is under 65 years old and in good health. Some insurance provider even set their policy eligibility to as young as 16 years old to encourage the younger generation to purchase insurance coverage.
Its simple, straightforward nature also adds up to its many advantages; people from all ages and background can understand the product easily without the need to research on confusing legal terms.
As is the case with every other temporary form of insurance, the coverage offered by a term life insurance is painfully limited. For one thing, you don’t know whether the term you’ve selected will be sufficient. It’s hard to predict the future, especially when the future lies 15 - 30 years ahead. What is certain is that when the term ends, your coverage ceases to exist, and it can be extremely difficult to renew the same policy if the need arises - especially if you’ve been diagnosed with any health problems - and even if you can, no doubt the premium will have increased dramatically.
For another, you don’t get any other benefit other than the death and total permanent disability (TPD) benefits, meaning there’s no health coverage (although some insurance providers offer an optional Critical Illness coverage that covers a specific range of critical illnesses at a slightly higher premium) or cash value whatsoever. In short, your term life insurance coverage will remain at a constant amount without any investment values.
Annual premium inflation
Most term life insurance provider will quote a new premium cost annually, taking into account your increasing age, health risks, and, naturally, death risks. All these factors constitute to a higher premium each year, and although you may have started the premium at an inexpensive premium, in a few years (especially if you develop a health issue) the premium might skyrocket out of your budget.
To avoid this, either look for a term life insurance policy that offers a fixed premium rate or request a table of estimated premium increments for the next 10 - 20 years and decide if you can commit to them until your term ends.
Is Term Life Insurance The Right Product For You?
There’s no hard and fast rule when it comes to choosing the best life insurance coverage, it all depends on how much you’re willing to pay and what your financial needs are in the long term. The best thing to do is to identify all your current financial commitments, and from there try come out with an estimate to how they will amount to in the next 15 - 30 years. From there, you can begin to pinpoint the amount of coverage you need, and whether whole or term life insurance policy will suit you better.
Head to our comparison page to see and compare the most popular term life insurance policies in the market!
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