Advantages & Disadvantages of Term Life Insurance
Life insurance provides you with the ability to immediately establish an estate that will go to your beneficiaries if you die. Life insurance is particularly important for the head of a household, since the family would have trouble continuing its way of life without her income. Term life insurance is one of the two main types of life insurance (the other being whole life insurance). To see if term life insurance is for you, you must weigh its advantages and disadvantages.
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Disadvantage: Temporary Coverage
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Term life insurance gets its name from the fact that it only covers you for a prescribed term. Once this term expires, you have no life insurance coverage, and you must negotiate a new plan. This may particularly be a problem if you have recently developed any serious health problems, as that will ensure that the premiums you must pay in your new plan will be significantly higher.
Disadvantage: No Investment Aspect
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In any life insurance policy, the base amount of money that your beneficiary gets if you die is called the face value or death benefit. On top of this, a whole life policy has an investment aspect, in that, as you continue to make payments into the plan, it gradually builds up a cash value that will often end up exceeding the face value. Even if you discontinue a life insurance policy, you can often "cash out" the policy and receive the cash value that you have built up. For term life insurance, however, there is no cash value or investment aspect. Once the coverage term passes, you receive nothing back for the payments you have made into the policy.
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Advantage: Lower Premiums
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While whole life insurance represents an investment on top of its main insurance aspect, term life insurance is just insurance and nothing more. For this reason, the premiums you must pay into a term life insurance policy are generally much lower. This is because, since the insurance company is only committing to cover you for a specified period of time, they view the risk of actually needing to pay you the death benefit at some point as much lower. However, after about the age of 50, you will find it difficult to get a term life policy.
Advantage: More Money for Lucrative Investment
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When you invest in a whole life insurance policy, you are essentially paying someone else to make your investments for you. When you consider the difference between whole life premiums and term life premiums and calculate the returns that come to you from that difference, you will see that the investment aspect of a whole life policy is not very lucrative. Rather than spending $200 per month on a whole life policy, you may find it more beneficial to spend $100 per month on a term life policy and invest the other $100 into a mutual fund or other investment instrument.
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