Term life insurance is considered one of the cost-effective options for securing the financial future of your loved ones. It offers temporary financial protection, providing coverage only for a specific time.
There are so many controversies about buying term life insurance. Some say term life insurance wastes money and time, while others argue that one should buy terms and invest the difference. Along with the numerous benefits of term life insurance, it is essential to be aware of its limitations. In this blog, we will try to understand term life insurance in-depth, along with all its possible pros and cons.
What is Term Life Insurance?
Term life insurance is a type of life insurance that gives you benefits only when you die suddenly within the particular time of your policy. Based on your insurance plan, this policy is valid only for a specific time frame, which may be 10, 20, or 30 years. Your designated beneficiaries get the death benefit when you die within this time frame.
The term period for this policy usually ranges from 5 to 30 years, with the 20 years plan being the most famous one. It is also called “pure life insurance” as it has no saving components or other added benefits. In other words, it provides a guaranteed death benefit to the insured person for a given period only.
Read out: Is Term Life Insurance Taxable?
What is one key disadvantage of term life insurance?
The most significant drawback of term life insurance is its lack of cash value or any investment component. Unlike permanent life insurance plans, this policy does not build cash value with time. Cash value is typically a savings component that accumulates within the policy, providing a potential source of funds that the insured can access during their lifetime.
What are the advantages and disadvantages of term life insurance?
Advantages of Term Life Insurance
The following are the benefits of getting a term life insurance policy:
- The most prominent benefit of term insurance is its lower cost than permanent insurance. It’s much cheaper because you are just paying for the death benefit, the amount your beneficiaries get if you die during the policy term.
- It can be a good choice if you plan to start a family, especially if you have a tight budget, as it allows you to buy higher levels of coverage while the need for protection is more significant.
- Term life insurance is an excellent way to address the requirements that may disappear in time. If paying for education expenses is a financial concern you would not need once the children graduate, it makes sense to go for term coverage to get you through the education years.
- This policy comes with the conversion benefit, so you can buy a term policy as it’s the lowest price right now and convert it later when needed. In this way, you will not get committed to any long-term policy, but you will keep the doors open by being in a safe zone.
- It is easiest to understand the type of life insurance policy as we all go for something simple and easy to get. Like if you purchased a 20-year policy when you were 30 years old, you would know that it will expire at the age of 50.
Disadvantages of Term Life Insurance
Now move towards discussing some of the cons of having term life insurance:
- Life insurance offers a limited time frame that can be problematic for some. You can buy a 30-year policy for $500,000 when you are 30, but if you want to buy it when you are 65, you will get a 20-year plan because the term length is related to your current age at the time of application for a policy.
- Getting term life insurance is just like renting an apartment or car, as no cash value is added after paying for years. However, some say they can save or invest by themselves and get rid of this policy once the term ends.
- If you get health issues after getting this policy, you will not get new insurance. You will be stuck with high premiums to pay, and at the end of the policy, you have to decide to keep it.
- The conversion term of this policy allows you to convert it only with the company from where you bought term life insurance. In case you get any health issues, you are at the mercy of the same company’s services.
What Does Term Life Insurance Coverage Offer You?
Following are the expenses for term life insurance cover for you in case of your sudden death:
- Pay educational expenses for your children.
- Help your loved ones to pay for your financial expenses and hospital bills.
- Allow your family to pay off debts like a mortgage.
- Replace your income if you pass away suddenly.
- Give short-term coverage if you are doing jobs.
The Bottom Line
Term life insurance is one of the most famous forms of protection in life insurance policies because of its low cost and easy-to-qualify procedure. No matter if you are going to buy life or term insurance, you have to be in good health condition to get the lowest rates. So it’s necessary to choose your plan accordingly while keeping your family and health condition in mind along with your budget.