Taking out life insurance is a big decision. It is a considerable investment that offers your loved ones protection and you peace of mind if the unexpected happens. However, it can be difficult to decide which type of policy – Term or Whole Life – is best suited for your situation.
Understanding what some benefits of Term Life Insurance are and what its drawbacks are can be helpful in deciding which policy you want to take out.
Term Life Insurance Summary
With Term Life Insurance, the coverage that is provided by the policy is only active for a set term. Therefore, over the course of that term, if the insured passes away then the beneficiaries will receive the payout. However, if the insured passes away after the term has expired, then the beneficiaries will receive no payout.
Pros of Term Life Insurance
One advantage of Term Life Insurance is that the premiums are generally cheaper than the premiums of a Whole Life Insurance policy. These lower premiums are due to the policy being temporary, so the insurer incurs less risk. Additionally, the policy is likely to offer protection when the insured is younger and therefore healthier.
Another advantage of Term Life Insurance is the flexibility that it offers. You get to choose how long you want the coverage to last, and this can usually range between 10 to 30 years. Therefore, you can take out a policy that is specifically designed to fit your needs.
Lastly, a Term Life Insurance policy can be extended for a set time and/or converted to a Whole Life Insurance policy. If you change your mind about wanting a set term, you have the option to convert the policy. This can be beneficial if your needs change in the future.
Cons of Term Life Insurance
A major disadvantage of Term Life Insurance is that the policy has no cash value component. The purpose of those monthly premiums is to secure a death benefit if the insured passes away during the term. Therefore, if the insured is still alive once the term ends, the beneficiaries receive no payout.
Term Life Insurance is temporary. The coverage and protection only last for a set amount of time. So, the peace of mind that the policy offers while it is active essentially goes away once the term ends.
Another disadvantage of this type of life insurance is that if you decide that you want to extend the policy, you need to requalify at the end of the term. It can be difficult to requalify as you get older, especially with the potential for health issues. Additionally, premiums can increase each time the policy is extended.
Term Life Insurance can be a great option for many. Understanding what it offers can help you decide which is the best life insurance policy for you.