The Pros and Cons of Term Life Insurance
What are the Advantages & Disadvantages of Term Insurance?
Nov 4, 2009
Term insurance is probably the most commonly chosen type of life insurance. Most consumers will make a choice between this option and whole life coverage. What are the pros and cons of this kind of policy?
What are the Advantages of Term Life Insurance?
For many consumers, this is their life policy of choice. Like any insurance option it is worth looking at the benefits and any negatives before coming to a final decision. The advantages of term coverage include:
- Cost: Term life policies tend to be cheaper than whole life options. This is based on the fact that the insurer may never have to deal with a claim if the policy holder survives their insurance. Term coverage will only last for a set number of years which makes it a lower risk to insurers than whole life alternatives with a guaranteed payment.
- Targeted coverage: Consumers can set up a term policy to cover them for a set sum or to decrease, or indeed even increase, over time. Decreasing term coverage, for example, may be one of the cheapest options. This will give a decreasing insured sum every year to meet the needs of consumers whose insurance needs may also go down as they get older.
- Needs based coverage: A term policy is usually designed to last until the holder approaches retirement and/or the repayment of their mortgage. From that life-stage their family's financial needs may not be as great and there may be no further need for life insurance protection.
In addition to these benefits, term insurance may, however, come with some downsides.
What are the Disadvantages of Term Life Insurance?
Before choosing any kind of insurance coverage the consumer may be wise to consider any disadvantages as well as advantages. With term insurance, these may include:
- Return on investment: Most term policies will only pay if the holder dies while the policy is ongoing. An individual can make all of their premium payments for the designated number of years and see no return if they survive their insurance. The exception here is return of premium insurance where they will, at least, get their premium payments refunded when their coverage ends but this may come at a higher cost.
- Re-insuring difficulties: Some people get to the end of a term policy and find that they do wish/need to carry on insurance coverage. If they don't have the option to renew then they may need to buy a new policy which can be difficult and more expensive as they get older.
Taking the time to compare term life insurance options with whole life products at the start may make it easier to pick the right solution. Once consumers have chosen the right policy to suit their needs, they may also want to consider ways of cutting their insurance costs to keep premium payments as low as possible.
 |
 |
 |
 |
 |
