Are There Disadvantages to Having Term Life Insurance?

Term life insurance is an affordable means to provide for your loved ones and family after you’re gone. Typically sold in increments of 10, 20, 30, or 40 years, term life policies are simpler and less expensive than whole life plans, but they do have some drawbacks.

To fully appreciate the potential disadvantages of term life insurance, it’s important to understand how it works. Term life is temporary coverage that lasts a predetermined period of time, chosen by you, the policyholder. If you die during the policy term, your insurance company pays a tax-free death benefit to your beneficiaries.

Budget-friendly premiums and sizeable death benefits are two of the chief benefits of term life insurance, however there are some limitations.

Drawbacks of Term Life Insurance Policies

Unlike whole life or permanent insurance plans, term life insurance has no cash value build up, which explains why the premiums are considerably lower. With term life, you pay level premiums in exchange for a guaranteed payout in the event of your death before the policy ends. There is no cash value account that can be borrowed from while you are alive, just the peace of mind that upon your death, your beneficiaries will have a financial cushion.

If you outlive the term life plan, no benefits will be paid out. Replacing the policy with a new one will inevitably be more expensive, since you will be older and may have new age-related health conditions and risk factors. For those with significant health problems, it may be more difficult to qualify for a new life insurance policy that isn’t cost-prohibitive.

Some life insurance providers offer convertible plans that allow you to convert a term life policy to a permanent one within a certain time frame. The premiums will increase once the conversion takes place, but this can be a smart option when you anticipate major changes to your life and economic stability down the road.

The Final Takeaway

If you are on a limited budget, and not looking to use your life insurance as a savings vehicle or for cash accumulation, then term life insurance still offers excellent value. The money saved on a term life policy—compared to whole life or permanent policy– can be set aside in the event your cash flow changes, or invested in your IRA or 401(k).

Find a Life Insurance Policy That’s Best for You

Purchasing life insurance can seem like an overwhelming task given the variety of products and riders available. Insurapply has simplified the process with our online platform that lets you compare term life insurance policy quotes from top-rated insurance companies. Since every carrier uses its own algorithms to determine premiums and coverage, you can see how each policy stacks up and choose the one that best suits your needs and financial considerations.

If you have questions along the way, our customer service representatives are happy to provide unbiased assistance.

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