Term life insurance covers you in the event of your death during a particular term or a limited amount of time. To help you determine whether you should purchase term life insurance, here are some pros and cons to consider.
Pros of Term Life Insurance
- Low Premiums: Term life insurance has some of the lowest premiums compared to other types of life insurance. The low cost is because coverage can be extended for a certain amount of time. Because of this, younger and healthier clients are able to purchase term life insurance without having to pay a high cost.
- No Waiting Periods: Unlike whole life insurance, there is no waiting period. Starting from day one, you will have coverage. There is also no medical examination necessary for term life insurance. In fact, most companies only require you to answer a few questions to determine eligibility.
- Can Convert to Whole Life Insurance: Some companies allow you to switch your term life insurance to a whole life insurance policy without the need for a medical exam. If you decide that you want to change to a permanent life insurance policy, understand that there may be a cut-off age where you cannot convert without a medical exam.
- Easy to Understand: Since term life insurance policies are temporary, the contract and terms of agreement are usually easy to understand. Term life insurance is activated in the event of your death and for no other reason. This type of insurance also lacks dividends or complicated regulations that may be difficult to understand.
Cons of Term life Insurance
- Premiums Increase Upon Renewal: When you purchase term life insurance, the original premium may be a very low cost. However, when it comes close to expiring, you have to think about renewing. Each time you renew term life insurance, the premium increases. Eventually, the cost can exceed that of whole life insurance.
- Cannot Be in Bad Health: If you are not in good health, most companies will choose not to insure you with term life insurance. If you begin a policy, and your health starts to decline, your premiums may begin slowing increasing while you’re stuck for the duration of your contract period.
- Age Limited: Once you are above a certain age, you may no longer be eligible for term life insurance. Most companies allow you to have temporary life insurance up to age 65, but you may find yourself forced to purchase whole life insurance.
- No Payout: Since it's temporary, you could potentially outlive your policy. If you do survive your policy, the money you spent is simply gone. There won’t be any kind of cash payout, and the value of the policy will reset to $0. Whole life insurance and other types of life insurance only increase in value over the term of the policy.
