What are the pros and cons of term life insurance?

Term life insurance is usually the best option for people whose insurance needs are temporary, such as when there is a mortgage to pay off, children to raise, or debts to liquidate. Young people often opt for term life insurance because they find permanent life insurance premiums prohibitively expensive.

However, term life insurance has its drawbacks, too.

Advantages of Term Life Insurance

• Term life premiums are the lowest on the life insurance market, allowing younger customers to buy more coverage when they most need it. However, this is usually not the case over the full duration of the policy. Because premiums rise with each term policy renewal, the cost in later years will exceed the level premiums of a whole life insurance policy.
• Term insurance is the best solution for needs that will disappear with time, and when protection is needed for less than ten years. Financial advisers usually recommend that permanent life insurance is purchased if one needs protection for more than 15 years.
• Young people can buy considerable face amounts at very low costs and have the necessary protection even if they become uninsurable.
• Policy owners can always convert to a permanent policy at any time while their term life policy is in force, without evidence of insurability.
• Individual packages can be created, combining different types of term life with other types of cash-value life insurance, to cater for specific needs.
• The death proceeds are not subject to federal income and state inheritance taxes.

Disadvantages of Term Life Insurance

• Although low at the inception of the policy, premiums increase as the insured person ages, to the point that they become prohibitive at later stages. This is also the case with level term policies.
• Term life insurance does not provide any living benefits; it only pays proceeds if the insured dies.
• Term life policies do not have a savings feature, like the cash value element in permanent life policies.
• Coverage ends when the term ends. Renewing the policy can be impossible or too expensive.

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