Disadvantages of Term Life Insurance

Learn About The Drawbacks of Term Insurance Policies

 

If you’re shopping for term life insurance coverage to protect your family you may be wondering what are the drawbacks of term insurance?

Although term insurance may sound like a good idea, you should be aware of the potential consequences of purchasing term life coverage.

Yes, term is cheap, and Yes, you can get the maximum amount of life insurance protection for your family based on your budget; however, there are some possible potential drawbacks.

Term Life Insurance Drawbacks

 

Cost of New Life Insurance Policy at Expiration – If you outlive your term insurance policy, your premiums to buy a new life insurance policy will be much more expensive, because you are older and your health may have changed. 

This only applies to you if you need life insurance to last longer than your selected duration (term) of your policy. That means, your need for coverage has changed after you purchased your original life insurance policy.

Your premiums increase every time your policy is renewed, because the chance of dying increases with age. The older you get, the higher risk you will die during your new life insurance policy term.

 

Conversion Premiums – If you do convert your term insurance to permanent life insurance – your premiums will be much higher for the same amount of life insurance. 

This is only reasonable, since permanent insurance provides coverage guaranteed to last your entire lifetime, as long as you pay your premiums on time. 

Whereas, with term life policies, there is no payout of the death benefit if you are alive when the duration of your term policy ends.

 

Rising Rates – Premiums usually increase with age, unless you buy level term life insurance. 

Some term life policies have level premiums for 5 years, then the premium increases, every five years. 

However, level term life insurance policies offer guaranteed premiums that remain the same for up to 30 years.

 

Uninsurable – When your term policy ends, you may not be in good health, and find yourself unable to qualifyfor a new life insurance policy at that time, should you need protection to last beyond your original term.

 

No Cash Value – Term insurance policies have no investment feature and build up no cash value inside the policy. 

However, this is one reason term insurance is so cheap. All the premiums paid to the insurance carrier are to cover the cost of the insurance, and you won’t receive a refund at the end of the policy term.

 

No Loans – Since term life has no cash value, there are no loans available from your term insurance policy.

  

Advantages of Term Life Insurance

 

Although term insurance has several disadvantages, there are some important advantages to buying a term life policy.

1. Premiums are much more affordable for Term life insurance compared to Permanent life insurance. 
2. Term life provides funds for people who depend on you for financial support.
3. It helps you create an estate to leave to your heirs, if you haven’t had a chance to build much wealth.
4. Level term premiums remain the same for the entire duration of your life insurance policy. So, 15-year level term means your premiums stay the same for 15 years.
5. Term life provides the maximum amount of life insurance protection for your dependents at the lowest cost.
6. It provides the most affordable life insurance option to fit almost any budget.
7. Many term life policies offer you the option to convert your coverage to permanent life insurance by some future date, (without having to prove insurability – that means you won’t have to take a medical exam).

 

Disadvantages of Term Life Insurance

 

1. Outlive Your Coverage Term – If you outlive your term insurance policy, your premiums to buy a new policy will be much more expensive.
2. Conversion Comes With Higher Cost – If you do convert your term insurance to permanent life – your premiums will be much higher for the same amount of coverage. 
3. Premiums May Change Over Time – Premiums usually increase with age, unless you buy level term life insurance.
4. Change In Health – When your policy expires, you may not be in good health, and unable to qualify for another life insurance policy at that time.

 

Life Insurance Quotes

 

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