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Is Term Life Insurance a Waste of Money?

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Putting a life insurance policy in place is a great way to protect the people you care about. But there are different types of life insurance you may be considering.

Term life insurance covers you for a preset period of time, or term. That term may be 10 years, 20 years, or 30 years — it depends on what you sign up for.

Whole life insurance, on the other hand, covers you for the rest of your life. It also accumulates a cash value you can access or borrow against down the line.

Term life insurance is far more affordable than whole life insurance because it runs out on you eventually and doesn’t accumulate a cash value. Because of this, you might assume that term life insurance is a waste of money. But actually, term life insurance offers a lot of value in its own right.

Term life insurance provides peace of mind

If you get term life insurance and don’t pass away before its term expires, then you won’t get a dime from your insurance company. On the one hand, that’s a good thing — it means you didn’t pass away at a relatively young age. But from a financial perspective, you might feel like you’re getting ripped off. After all, you’re paying premiums for all these years and aren’t getting a payout at the end of the day.

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What you need to realize about term life insurance, though, is that it’s buying you something very important — protection for your loved ones and peace of mind. If you put a 30-year term life insurance policy in place at age 30 and are still alive at age 60, you shouldn’t take the attitude that you got nothing out of your policy — because actually, you did. What you got was 30 years of protection in the event of your untimely passing that, thankfully, didn’t come to be. And there’s a lot of value in that.

It’s also worth noting that while whole life insurance does accumulate a cash value and is designed to pay you something at some point, getting that payout hinges on being able to actually keep your policy. Whole life insurance premiums can be so costly that they often force policy holders into a situation where they can no longer pay.

At that point, those policyholders lose their coverage and get nothing at all out of that money. Compare that to term life insurance, which is far more affordable, and it’s easy to make the case for a policy that doesn’t build up a cash value but offers solid protection regardless.

Protect the people who mean the most to you

The purpose of term life insurance isn’t to snag a big payday yourself. It’s to ensure your loved ones are protected financially in the event of your passing. Once you recognize that, it becomes much easier to justify the cost of a policy that doesn’t accumulate a cash value the same way whole life insurance does.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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