Having a Term Life Insurance Policy plan surely has a lot of benefits attached. There are however other certain benefits and disadvantages involved with purchasing this policy. This is as regards a particular individual’s needs and purpose objectives.
It is therefore important that you understand the pros and cons involved in purchasing this kind of policy and ascertain your end goals from the very beginning so you don’t end up purchasing the wrong policy.
The following article exposes the important advantages & disadvantages of a term life insurance plan.
Advantages of Purchasing a Term Life Insurance Policy.
Term Life Insurance policy is often favoured by many due to its affordability, reasonable coverage/high surrender cash value, its flexibility and its simplicity.
- Affordability– Term life insurance premium rate can be far cheaper compared to other insurance policies because of the fixed premium set over a certain number of years. The premium price rate does not change in this policy except the time limit expires. This makes the plan a favourable choice among a lot of individuals that prefer a low-cost life insurance policy. Younger individuals are also commonly attracted to this policy with regards to the fact that premium rates decrease by younger age and a maximum value for their plan is gotten.
- Reasonable Coverage Amount/High Surrender Cash Value– A term life insurance plan allows for a high coverage on death benefits to the insured beneficiaries. Also, in a Term Life insurance plan, the Surrender Value/ Surrender Cash Value is comparatively higher in contrast to the Cash Value of a Permanent Life Insurance policy and as such enables you to benefit from this in the event where you decide to terminate your policy before its expiration.
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- Flexibility– There are a lot of alternatives you are open to when you are on a term life plan. For instance, you can either choose how long you wish to pay your term plan, i.e., the term period (usually between 1-30 years) or rather, choose to port over to a Permanent life insurance premium plan by a policy called Convertible Term Life Insurance.
- Simplicity– The policy plan is the simplest life insurance among other life insurance policies as it does not involve any complicated process and is very easy to understand. You only have to decide on how much you wish to get covered and the time period you prefer. Individuals who are in need of temporary life insurance find this policy most useful to them.
Disadvantages of Purchasing a Term Life Insurance Policy.
In contrast to the Permanent Life insurance plan, a term life insurance policy is never a life-long guaranteed plan and as such:
- Covers only for Limited Time– The term life insurance plan is not ideal for people who prefer a whole life insurance plan.
- Gets more expensive with each term lapse– Unlike in Permanent life policy that has a fixed unchanging premium rate for the rest of one’s life, this plan does not have the same fixed rate whenever a term expires but rather increases in respect to the insured’s age. This can get pretty fast expensive as each term expires.
- Insurance Company’s Refusal to Renew Policy after expiration– A provider can refuse to renew your policy after expiration if you develop a critical health condition.
- Lack of Investment Value– In a term life insurance policy, there is next to zero investment value in the plan for an insured as there is no buildup of cash value for the premium price paid to know more details about a cash value and its difference from the surrender cash value of a term life policy).
Overall, from the above explanation of the advantages and disadvantages involved with purchasing a term life policy, we realize that our choice in opting for this policy really depends on certain circumstances surrounding us at a certain period in time and on our needs as an individual.
If you are still not clear on what a term life insurance policy is all about, check out our previously written article on Basic Guide to Understanding How Term Life Insurance Policy Works.
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