Advantages and Disadvantages of Term Life Insurance

April 12, 2018

 
 

Unlike other life insurance policies that are designed to be permanent, term life insurance is meant to be temporary. This is both a disadvantage and an advantage at the same time. The main benefit of term life insurance is that you are buying a life insurance cover without having to incur additional charges.

As a result you will be getting a high death benefit even though the up front cost is not as high as with other life insurance policies.

Advantages of Term Life Insurance

1 – Temporary Cover

If a person is looking for an insurance life cover that spans a definite period of time, then term life insurance would be their best bet. In many cases, people who decide to take life insurance do so because they are looking for protection against the death of the home’s main provider.

Let us consider the following scenario. A young family, where the man is the sole provider while the woman stays at home. Such a family would not have cash reserves to take advantage of in the event that the man passes away which would leave them in great financial risk.

If the young mother died, the father would be left with the duty of providing childcare.

In such a situation, both parents are good candidates for term life insurance. This situation makes term life insurance ideal for both the mother and father. This is because their situation is not permanent, the child will grow older and self-dependent negating the need for motherly care or financial support from the father.

2 – Makes Financial Sense

All types of life insurance have a mortality charge that is used to pay for pure coverage. The death benefit is paid for by mortality charges that are determined statistically. If you are looking to get the maximum death benefit yet only willing or able to afford a small up front payment, then term life insurance has got you covered.

3 – Low up front cost

Term life insurance premiums are directly related to mortality charges which in turn are determined by how high or low the chance of the policy holder dying are.

Non-level life insurance policies with premiums that increase every year can be cheap for younger people, that is, they have a high chance of paying low premiums, if they are just looking for temporary coverage.

Disadvantages of Term Life Insurance

Some of the disadvantages of term life insurance include:

1 – Limited Coverage

One of the biggest challenges presented by term life insurance as well as other different types of temporary life insurance, is that the policy holder does not know how long they will  need it for. It is impossible for someone to predict their future which usually results in people thinking that 20 years worth of term life insurance cover will suffice which might be a wrong estimation.

2 – Escalating Premiums

The other disadvantage is that non-level term insurance comes with rising premiums. The rise in premiums is caused by the ageing of the policy holder. If the policy holder is young this might not be an issue, however, over time term life insurance becomes too expensive.

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