Term life insurance is the most basic form of life insurance. It is designed to provide affordable death protection for the short term and pays a benefit only if you die. There are many different types of term insurance with level term life insurance being the most popular choice. Following are some of the advantages and disadvantages of term insurance.
Advantages of Term Life Insurance
- Price. Term is the cheapest form of life insurance you can buy.
- Affordability and Value. With term, you can purchase the amount insurance that you need without paying more than you can afford. This is especially true when you are young and need a great deal of insurance to protect your family.
- Covering Short Term Needs. Term life insurance is a perfect solution for covering temporary obligations. Many people purchase mortgage life insurance which is essentially term life insurance that pays off your home in the event of your death.
- Easy to understand. Term insurance is simple. With term, you are buying pure death protection without equity. It’s cheap and doesn’t have a lot of complicated variables.
- Guaranteed Prices. Term life insurance offers guaranteed rates. Depending on your needs, you can “lock-in” rates for 1, 5, 10, 15, 20, 25 or 30 years. These level term life policies are extremely popular. In fact, you can even get a lifetime guaranteed term policy.
- Conversion Options. Most term policies offer conversion options allowing you to exchange your term life policy for a more permanent policy without proof of health. This option can be invaluable if you develop a health problem or can no longer medically qualify for life insurance.
- Flexibility. With term, you can separate your life insurance from your investments. This “Buy Term and Invest the Difference Philosophy” has become increasingly more popular in the last 20 years.
Disadvantages of Term Life Insurance
- Increasing Prices. Premium payments for term life insurance increase after the initial guarantee period. For example, if you own a 10-year level term policy, you can expect a significant increase in your premium after the 10th policy anniversary.
- Cost Prohibitive Over Time. Term insurance is designed to be temporary and therefore will become cost prohibitive at some point. If you need life insurance that extends beyond your life expectancy, term life is not the way to go.
- Not Designed to Last a Lifetime. Because premiums increase and eventually become cost prohibitive, you may not be able to afford to keep your term policy. In fact, a great majority of people that buy term life insurance end up outliving the coverage and drop it because of the costs.
- No Cash Value. Most term life builds no equity. There is a policy known as return of premium or ROP term that builds cash value. However, most term polices have no cash growth.
If you are shopping for life insurance, there are compelling reasons why you should consider term life insurance. Some of these reasons include affordability and guaranteed rates as well as flexibility. Equally important are the disadvantages of term insurance especially the fact that term life is most likely not a long term solution. The right type of life insurance will eventually depend upon your specific needs. One of the most important considerations is your choice of agent. MEG Financial represents the top term life insurance companies in the industry and can help you choose the term life policy that is best for you. Call MEG Financial today at (877) 583-3995 for a free term life insurance quote!