What Is The Main Disadvantage Of Term Life Insurance?
Life insurance policies can offer many benefits for both policyholders and beneficiaries. However, not all policies are right for everyone. This article can help you decide which kind of life insurance is right for you by telling you:
| Policy Type | Pros | Cons |
|---|---|---|
| Term Life Insurance | Relatively affordable, level premiums that remain the same throughout the term | Coverage is temporary, policies don’t have cash accounts that build value, rates may be significantly higher if you want to extend coverage |
| Whole Life Insurance | Provides life-long protection, guaranteed level premiums, builds tax-advantaged cash value, pays dividends to policyholders | More expensive than term insurance |
| Universal Life Insurance | Provides life-long protection, flexible premiums that can be adjusted, builds tax-advantaged cash value | Rates may increase as you get older, if you pay the minimum for too long, it can impact the death benefit and even cause the policy to lapse |
Term life insurance policies last for a set period, during which you’ll pay premiums to the insurance company to maintain coverage. These policies typically have “level” premiums that remain the same throughout the term, so you don’t have to worry about rising premiums. Coverage typically lasts between 10 and 30 years. If you pass away during the term, your beneficiaries will be paid a cash benefit. However, once the term ends, there’s nothing left. And, if you want to extend coverage, you need to apply for a new term life insurance policy with rates that may be significantly higher because life insurance gets costlier with age.
Therefore, the main disadvantage of term life insurance is that it provides temporary coverage, and there is no cash value accumulation. If you are looking for a policy that builds cash value and provides life-long protection, you may need to consider whole life or universal life insurance.
