Term Life Insurance: Pros and Cons

Term life insurance can help create a financial cushion for your loved ones. It’s simple, affordable, and pays out a significant death benefit to your beneficiaries if you pass away during the policy term. But keep in mind that it also lacks certain features, like lifelong coverage and cash value, that some policyholders may need. In this article, we’ll dive into the benefits and drawbacks of term life insurance policies to help you decide if you should seek out a term life insurance quote for you and your loved ones.

Pros of term life insurance

Term life insurance has several advantages, making it a good choice for many policyholders:

Affordable premiums

Term life insurance premiums are typically lower than many permanent life insurance premiums but still offer comparable death benefits. This can make term life insurance a more budget-friendly option.

Flexible term lengths

Term life insurance policies often come with term lengths of 10 to 30 years. This allows you to customize the length of your coverage to meet your requirements. For instance, you might purchase a 20-year policy to cover your child long enough for them to become an independent adult. Then, the policy will expire when you no longer need it, allowing you to stop paying premiums.

Simple to understand

Term life policies are simple to understand because they have no cash value component. So, policyholders don’t have to worry about managing or investing any cash value. For instance, you won’t have to decide how to withdraw or borrow from your cash value to make the most use out of it. This simplicity can make it easier for both potential policyholders to shop for quotes and current policyholders to understand and make the best use of their policy.

Cons of term life insurance

Although term life insurance has its benefits, there are some downsides to keep in mind when you’re considering a policy:

Coverage expires

Term life insurance coverage expires when the policy term ends. If you want to continue your coverage, you’ll have to buy a new policy. Keep in mind that since you’ll be older, your new policy’s premiums could be higher than the first policy. And if you have any new health issues, this can also increase premiums.

Age and health issues can make requalification more difficult

The older you are, the harder it can be to qualify for some term life policies. Additionally, you may have developed health issues during your last policy’s term. These health problems could make it harder to qualify for new coverage.

No cash value component

Only permanent life insurance policies come with cash value, a component that grows tax deferred. The cash value can be withdrawn from and borrowed against or paid out entirely if you surrender the permanent policy. Term life insurance doesn’t have cash value. So, if you’re interested in a policy that can also function like a savings account, the lack of cash value on a term life insurance policy may not be ideal.

Is term life insurance worth it?

Term life insurance can be worth it for some customers. Whether this life insurance policy works for you may depend on factors like your budget, coverage needs, and financial goals. If you don’t require lifelong coverage and want to save money, a term life insurance policy could work well for you. They’re often more affordable than many permanent life insurance policies, simpler to understand, and offer flexible policy terms.

But if you want lifelong coverage and the ability to build cash value over time that you may be able to tap into while you’re alive, term life insurance may not be the right option. Its coverage expires when the policy term ends, and it has no cash value.

Weigh the pros and cons to decide if a term life policy is right for you. Then, shop around for multiple quotes to get the right coverage at a rate you can afford.