The Pros & Cons of Term Insurance
When choosing life insurance, you must understand your needs and financial goals. Two types of life insurance are permanent life insurance and term life insurance. Permanent life insurance provides coverage for your entire life. The downside to this type of insurance is that it carries premiums that are higher than a term policy. But, you should also understand the pros and cons of term life insurance before making any final decisions about your life insurance.
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Premiums
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The premiums of a term life insurance policy are low in the beginning years of a policy. This is especially true of annual renewable term life insurance. This, in turn, makes term life insurance very affordable when you first purchase it. However, as you get older, the policy premiums increase. With level term insurance, policy premiums stay flat. However, upon renewal of the policy, the premiums may increase substantially.
Simplicity
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The simplicity of term life insurance is in the fact that the policy charges a premium for a death benefit. There are no other components to the policy. As long as you pay the required premium, your life insurance policy stays in force. The downside to the simplicity of the term policy is that you do not have the flexibility of a permanent policy. Premiums cannot be reduced or eliminated over time. Also, unless you opt for specialized riders on certain kinds of term policies, you won't receive any of your premiums back when the term policy matures.
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Underwriting
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With term life insurance, you may be able to purchase a large amount of death benefit without undergoing significant (or any) health exams. This is normally not an option that is available with permanent policies. This is an advantage if you don't like the idea of having your blood drawn, or you don't want to wait for several weeks and endure a full underwriting procedure.
Long-term Planning
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Term life insurance is not meant for long-term planning. This is a major shortfall of term life insurance policies. While the policies provide cheap insurance coverage, a financial plan must be long-term, since average life expectancies are more than 20 or 30 years. Even if you buy a term policy in your 30s, you will need a financial plan to handle your final funeral expenses if you live beyond age 60. Term insurance does not provide you with a way to finance final expenses associated with old age.
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