Does term life insurance have a higher probability of paying out after death?
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Asked May 7, 2013
Any type of life insurance policy, whether it is term or permanent life insurance, is going to pay out after the death of the insured, unless that death is due to exclusions named in the policy. Because of that, it is difficult to understand exactly what your question is asking. The simple fact is that term life policies in general are less likely to have a payout than any type of permanent life insurance, by virtue of the fact that a whole life policy remains in effect until you die while a term policy may expire while you are still alive and doing fine.
Term life, by definition, is intended to insure your life for a specific number of years. As long as you make your premium payments and do not die as a result of some exclusion in the policy, the policy will pay the face value to your named beneficiaries after your death. If you stop making payments or allow the policy to lapse in some other way, then the face value of the policy is lost, and the policy will not pay.
Whole life insurance, also called permanent life, is designed to remain in effect until you die, or until you reach the age specified in the policy. In both cases, as long as your death is not caused by something that the policy excludes, the policy will pay out to the named beneficiary. Technically, since you will spend more years paying into a permanent life policy, the cost of the policy will be higher, and more of what it pays will be your own money being returned to your family or other beneficiaries.
The average lifespan in the United States is around 86 years old. Purchasing a term policy that expires before you reach the age of 86 is more likely to result in the loss of your premiums. For that reason, it is sometimes more reasonable for a young person to purchase a permanent life policy, to make sure that they can recoup the investment of the policy after their death. However, if you purchase a term life policy that includes the ability to convert it to a permanent policy later, you can get the best of both types of coverage, using the term policy during the early years and then converting over to a whole life policy before the term expires.
Answered May 7, 2013 by Anonymous