Disadvantages of Term Life Insurance
If you’re shopping for term life insurance coverage to protect your family you may be wondering what are the drawbacks of term insurance?
Although term insurance may sound like a good idea, you should be aware of the potential consequences of purchasing term life coverage.
Yes, term is cheap, and Yes, you can get the maximum amount of life insurance for your budget; however, there are some possible disadvantages.
Term Life Insurance Drawbacks
Cost of New Coverage at Expiration – If you outlive your term insurance policy, your premiums to buy a new policy will be much more expensive.
This only applies to you if you need life insurance to last longer than you selected duration (term) of your policy. That means, your need for coverage has changed after you purchased your original term life plan.
Your premiums increase every time your coverage is renewed, because the chance of dying increases with age.
Conversion Premiums – If you do convert your term insurance to whole life – your premiums will be much higher for the same amount of coverage.
This is only reasonable, since permanent life insurance provides coverage guaranteed to last your entire lifetime as long as you pay your premiums on time.
Whereas, with term insurance, there is no payout of the death benefit if you are alive when your term policy expires.
Rising Rates – Premiums usually increase with age, unless you buy level term life insurance.
Some term life policies have level premiums for 5 years, then the premium increases, every five years.
However, level term life insurance plans may offer guaranteed level premiums for a period of up to 30 years.
Uninsurable – When your policy expires, you may not be in good health, and unable to qualify for another life insurance policy at that time, should you need life insurance protection to last beyond your original term.
No Cash Value – Term insurance policies have no investment feature and build up no cash value inside the policy.
However, this is one reason term insurance is so cheap. All the premiums paid to the insurance company are to cover the cost of the insurance policy, and you won’t receive a refund at the end of the policy term.
No Loans – Since term life has no cash value, there are no loans available from the policy.
Learn about the advantages of term life insurance.
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