Term
Life Insurance: Advantages and Disadvantages
Term life insurance
is the most basic form of life insurance. It is designed
to provide affordable death protection for the short term
and pays a benefit only if you die. There are many different types
of term insurance with level term life insurance being
the most popular choice. Following are some of the advantages
and disadvantages of term insurance.
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Advantages of Term Life Insurance
- Price. Term is the cheapest form
of life insurance you can buy.
- Affordability and Value. With term,
you can purchase the amount insurance that you need
without paying more than you can afford. This is especially
true when you are young and need a great deal of insurance
to protect your family.
- Covering Short Term Needs. Term
life insurance is a perfect solution for covering temporary
obligations. Many people purchase mortgage
life insurance which is essentially term life
insurance that pays off your home in the event of your
death.
- Easy to understand. Term insurance
is simple. With term, you are buying pure death protection
without equity. It’s cheap and doesn’t
have a lot of complicated variables.
- Guaranteed Prices. Term life insurance
offers guaranteed rates. Depending on your needs, you
can “lock-in” rates for 1, 5, 10, 15, 20,
25 or 30 years. These level term life policies are
extremely popular. In fact, you can even get a lifetime
guaranteed term policy.
- Conversion Options. Most term
policies offer conversion options allowing
you to exchange your term life policy for a more permanent
policy without proof of health. This option can be
invaluable if you develop a health problem or can no
longer medically qualify for life insurance.
- Flexibility. With term, you can
separate your life insurance from your investments.
This “Buy Term and Invest the Difference
Philosophy” has become increasingly
more popular in the last 20 years.
Disadvantages
of Term Life Insurance
- Increasing Prices. Premium payments
for term life insurance increase after the initial
guarantee period. For example, if you own a 10-year
level term policy, you can expect a significant increase
in your premium after the 10th policy anniversary.
- Cost Prohibitive Over Time. Term
insurance is designed to be temporary and therefore
will become cost prohibitive at some point. If you
need life insurance that extends beyond your
life expectancy, term life is not the way
to go.
- Not Designed to Last a Lifetime. Because
premiums increase and eventually become cost prohibitive,
you may not be able to afford to keep your term policy.
In fact, a great majority of people that buy term life
insurance end up outliving the coverage and drop it
because of the costs.
- No Cash Value. Most term life builds
no equity. There is a policy known as return
of premium or ROP term that builds cash value.
However, most term polices have no cash growth.
Summary
If you are shopping for life insurance, there are compelling
reasons why you should consider term life insurance.
Some of these reasons include affordability and guaranteed
rates as well as flexibility. Equally important are
the disadvantages of term insurance especially the
fact that term life is most likely not a long term
solution. The right type of life insurance will eventually
depend upon your specific needs. One of the most important
considerations is your choice of agent. MEG Financial
represents the top term life insurance companies in
the industry and can help you choose the term life
policy that is best for you. Call MEG Financial
today at (877) 583-3995 for a free term life insurance
quote!
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