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Advantages and disadvantages of term life insurance

How can you identify 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.

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 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.

Advantages of buying term life insurance

Price

Term life insurance premiums will be lower when compared to permanent policies with the same benefit amount. In other words, if you buy a $1 million dollar life insurance policy, a term life policy will 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.

Temporary

Term life insurance is an excellent choice when you need to insure a specific length of time such as a mortgage, 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 dire 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.

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.

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

Unexpected

With term life insurance, you 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.

No cash value

Term life isn’t structured to provide cash value.

Claims

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

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 secure appropriate coverage or affordable coverage.

Availability

When you enter the older ages of life (after 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.

  • 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.

 

  • 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.

 

  • Buy term and invest the difference. This is a popular use for those that are disciplined and invest in other financial markets instead of using permanent life insurance.

Learn about life insurance

Thank you for reading our article, Advantages and disadvantages of term life insurance.

Please visit our Life Insurance 101 page to learn more about life insurance. 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 Quinn is the owner of Life Insurance Blog. If you have specific questions or face challenges getting coverage. Please email or call me a call at 888-411-1329 - Either way, I'm happy to help you.