Term Life Insurance Pros and Cons 

Term Life Insurance Pros and Cons

One of the most common reasons why people purchase life insurance is to prepare for the end of life. Regardless of the type of life insurance policy that you purchase, coverage benefits are provided to beneficiaries when you pass away. These benefits are commonly used to supplement lost income, to pay off major expenses and to address other significant financial concerns that the family may face after your death. Before you can set up coverage and benefit from the peace of mind that it provides, you will need to determine what type of coverage to purchase. Term life insurance is one of the more common types available, and it may be a type that most people think about when the topic of life insurance comes up, so it is important to understand how term life insurance works.

What Is Term Life Insurance?

You understandably need to examine term life insurance pros and cons, but you will first need a clear understanding about what term life insurance is. Term life insurance is appropriately named because it offers benefits for a fixed term length. When you purchase coverage, you can select a term length that is most ideal for your needs. The options typically span between 15 and 30 years, but some providers offer term lengths outside of this range. You will also select your benefits amount when you set up the policy. If you pass away within the term length, your beneficiary will receive the death benefits that you purchased.

Term life insurance is cheaper than you may think, and rates are usually based on a combination of factors. These include:

  • Your age
  • Your gender
  • Your health status
  • The term length and benefits amount selected
  • Lifestyle risk factors

When you purchase term life insurance, your rate will be determined based on these and a few other factors. Typically, your rate is locked in and remains the same throughout the entire length of the term. Therefore, it is often best to purchase coverage younger in life.

Term Life Insurance Pros and Cons

The Benefits of Term Life Insurance

Now that you know more about what term life insurance is, you may be wondering what its pros and cons are. Compared to some of the other types of life insurance available, these are some of the benefits of term life insurance:

  • A lower rate than permanent life insurance
  • Flexibility to set up coverage based on a desired term length and benefits amount
  • The ability to lock in your rate for the entire term length
  • The ability to apply for coverage with or without a medical exam

The Drawbacks of Term Life Insurance

It is likewise important to review the drawbacks associated with term life insurance in comparison to other coverage options available. These include:

  • Coverage that ceases at a fixed date even if benefits were never paid out
  • The possibility of needing to purchase a second policy later in life when rates may be much higher
  • The possibility that coverage may cease when your health status is poor and makes you ineligible for new coverage
  • No cash value component
  • No flexibility to adjust the premium amount

Alternatives to Term Life Insurance

Term life insurance is only one of several types of coverage available. The other major type is permanent life insurance, which is generally comprised of whole life and universal life insurance. These coverage types are usually only available with a medical exam, and they both have a cash value component. There are also some options for term life insurance with no medical exam. This component accumulates in value through interest and with each additional premium payment. Because of this, the premium amount may be substantially higher than a term life premium. However, this feature also makes permanent life insurance a financial asset. Permanent life insurance does not have a term length, and this means that coverage may remain in effect throughout life. In addition, you may be able to adjust the premium payment slightly as needed over the years by adjusting how much of each payment is allocated for the cash value component. This cash value component is yours to access. You can access it through a low-interest loan or through the surrender of your policy. It is commonly used to make investments, to pay for the kids’ college, to partially fund retirement and more.

After learning about term life insurance pros and cons as well as alternatives, you may be ready to set up coverage. Before you decide whether term life insurance is the right option for you or not, carefully consider your specific need for coverage. For example, how long do you need benefits? What is your budget for the premium? What is the preferred benefits amount that you would like? Once you understand your need for coverage, you can gather and compare estimates. Many people will compare estimates for term and permanent life policies before they decide which coverage option is best for their unique needs, and you can even find life insurance brokers and agents online who can assist you every step of the way.

Disclaimer: TermLifeInsuranceUSA.com is not a licensed insurance agency or broker. The content of this website is for informational and comparative purposes only and is not intended to take the place of professional advice from a licensed insurance agent. TermLifeInsuranceUSA.com recommends that all consumers consult with a licensed insurance agent before purchasing any insurance policy.

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