Term insurance is life insurance for a set period of time, usually 10, 20 or 30 years. The premiums are fixed for that amount of time. Similar to renting an apartment, you aren’t building any equity in the policy, but this is perfectly OK. Do we build any “equity” or cash value in our car insurance premiums? What if we never use that? Do we ask for the money back if we don’t get into an accident? Heck no. Yet people ask me all the time, what happens if I don’t use my life insurance? Can I get the money back?
Yes, you can, if you want to. There are a few ways to do this, either with Return of Premium Term, or permanent life insurance that builds some cash value. Naturally, the premiums for those will be higher. I try to steer away from saying “more expensive”, because at the end of the day, life insurance isn’t expensive. NOT having life insurance is really, really expensive for your family.
Chances are, a term policy won’t be paid out as a death benefit. You’ll either outlive the term (best outcome) or you “convert” it to a permanent policy down the road.
Term insurance is awesome for younger people, especially those just getting “started” with life insurance. You get the most bang for your buck, and can get a lot of coverage for pennies on the dollar. Yes, it is temporary, but at least a 20- or 30-year term policy will insure you while your spouse and/or kids depend on you financially (think mortgage, car payments, utilities, education expenses).
Also consider permanent life insurance. As long as you pay your premiums for the life of the policy, you have a 100% chance that the policy will get paid out to your family at some point, whether you live another month or live to you’re 105.
Want to hedge your bet a little? You can do a mix of term and permanent. No one says you can’t have more than one life insurance policy. In fact, I encourage this to most of my clients.
Back to the original question – I hope your life insurance is never “used” during your younger years. ANY type of insurance is there for the unknown and things we don’t expect.