Advantages and disadvantages of term life insurance

Advantages and disadvantages of term life insurance
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    What are the advantages and disadvantages of term life insurance? This is an important question and life insurance shoppers need to understand the pros and cons of term life insurance. Sometimes people get so focused on price or the life insurance company rating and don’t spend enough time learning about policy types.

    Term life insurance is one type of coverage that provides your loved ones financial protection if you were to die. When you own a life insurance policy and you pass away, the beneficiaries that are named on your term policy will get a death benefit payout.

    Advantages and disadvantages of term life insurance

    The advantages and disadvantages to purchasing term life insurance can be significant, so this article will help you understand them. So let’s get to it: Our list of 9 term life insurance advantages and disadvantages.

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    Advantages of buying term life insurance

    1. Price

    Term life insurance premiums will be lower when compared to permanent policies with the same benefit amount. In other words, no matter if you buy a $1 million dollar life insurance policy, or a $10 million life policy; term will always be less expensive compared to a permanent life insurance policy.

    Term life is the biggest bang for you buck if you’re looking for the maximum amount of death benefit for your premium dollar.

    2. Temporary

    Term life insurance is temporary insurance. It’s an excellent choice when you need to insure a specific length of time such as a mortgage, sba loans, or your children’s education. If you’re a young couple, you most likely don’t have a huge cash reserve at this stage in your life. 

    If the bread winner of the family were to die, the family will most likely be left in a horrible financial situation. A term policy would protect this situation by covering the family during the working years and allowing them to save and provide protection once they enter the retirement years.

    3. Simplicity

    There are a variety of life insurance types. Some are more complicated than others. A term life policy is simple to understand compared to some permanent life insurance policies and options. Term is very basic- you pay your premium and you receive coverage for the selected term. Permanent life insurance has confusing parts such as cash value, policy loans, paid up additions, etc. These can get quite confusing for shoppers who want a basic life insurance policy.

    4. Flexible

    Term life can be cancelled easily if needed. Opting out of a permanent life insurance policy can be quite the headache in some situations where you terminate the policy too soon.

    Disadvantages of buying term life insurance

    It would be great if term life was perfect. It’s a great product, but has some shortcomings. Let’s look at the disadvantages of term life insurance.

    5. Unexpected

    One of the major disadvantages of term insurance is that your premiums will increase as you get older. When you buy term life in your 20s or 30s, it will be much cheaper compared to when you need to renew your policy later on in your 50s or 60s.

    6. No cash value

    Term life isn’t structured to provide cash value. This is a major disadvantage of term life insurance when comparing it to permanent policies like whole life.

    7. Claims

    Approximately 1% of term life insurance policies ended in a death claim.

    8. Uncertainty

    Your term policy will stop providing coverage when the term ends. If you want to renew your policy after the 20 or 30 year term ends – your situation might not be favorable. Your age alone might make the cost of insurance too much.

    You may have become uninsurable during your term making it very difficult to qualify for coverage or get an affordable policy. This is a big disadvantage of term insurance. This could have been avoided with lifetime coverage like a guaranteed universal life policy.

    9. Availability

    When you enter the older ages of life (after age 65), it starts to become much more difficulty to secure term life insurance. The majority of life insurance companies do not provide policies at these ages. The ones that do are often limited and expensive.

    How to use term life insurance

    Here are some popular examples of how term life insurance is used.

    • Budget: If you are on a strict budget and need life insurance coverage, term life will be the better option because permanent life insurance will cost more.
    • Breadwinner: When you’re the sole breadwinner of your household. You’ll be able to secure a much higher death benefit with term in order to protect your loved ones for your specific budget.

    Learn about life insurance

    Thank you for reading our article, Advantages and disadvantages of term life insurance. Hopefully you’ve learned a little more about term insurance benefits and drawbacks. Do you know any other term life insurance disadvantages or advantages? Please leave a comment below!

    Also, read up on the best life insurance companies and learn more about who can offer the best life insurance deals. You’ll find helpful articles and get life insurance buying tips in order to make a smart life insurance purchase.

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    Michael Quinn

    Michael is a licensed life insurance agent, expert & owner of Life Insurance Blog. LIB has helped thousands of shoppers understand life insurance and secure affordable coverage.

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