Term Life: The Pros and Cons

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Some of the Pros of Buying Term Insurance:

• Term is the least expensive life coverage to buy.
  
  
• Term insurance is simple to understand.
  
  
• The premiums for 'annual renewable' policies rise every year while the premiums for 'level term' policies remain the same for a period of time (typically 5-10 years).
  
  In order for the insurance company to be able to offer a plan with level premiums, they must charge more initially. So the first couple of years, an annual renewable policy would probably be cheaper, but in just a few years it would become much more expensive that the level premium policy.
  
  
• It's a great choice for young families who need a high death benefit but cannot afford big premiums.
  
  
• It's a good choice if your need for life insurance is temporary, such as the period when your children are growing up or while you are paying off a mortgage.
  
  
• Term life insurance allows you to buy coverage only for those years that you really need to have it.
  
  
• You can specify the exact number of years you want coverage.
  
  
• If your need for coverage is for a period of fewer than 15 to 20 years, term life enables you to buy the biggest death benefit at the lowest price.
  
  
• Because you save money on premiums (over the cost of permanent insurance), you can use your savings to invest as you see fit, rather than your insurance company investing for you. This is commonly referred to as "buy term and invest the difference" and requires a considerable amount of discipline.
  
  
• If you choose a policy that is "guaranteed renewable", you can renew it for another period of time without having to provide evidence of insurability.
  
  
• If you choose a "convertible" policy, you can later convert it to a permanent life policy.

A Few of the Cons

• The cost of term coverage increases as you get older.
  
  
• Coverage ends when the agreed upon time period is over.
  
  
• If you develop certain health conditions, you may not qualify for coverage when it's time to renew your term policy, unless your original policy is guaranteed renewable.
  
  
• You generally cannot change the amount of your death benefit or the amount you pay for premiums during the term of the policy.
  
  
• Your policy has no savings component – all the money you pay is for the death benefit only.
  
  
• Unlike whole life, a term policy does not build up cash value with tax advantages.
  
  
• You cannot borrow money from the policy or "cash it in" when you need funds.
  
  
• Since there is no cash account, there is no provision to take money to pay premiums should you be unable to.
  
  
• A term policy never becomes "paid-up".