The Pros and Cons of Term Life Insurance
Term life insurance is a type of life insurance that provides coverage for a set period, usually 10 to 30 years ¹. It is a simple and affordable way to secure substantial coverage for your loved ones in the event of your passing. However, it lacks a cash value component, and there is no payout if you outlive the term ². Below are the pros and cons of term life insurance:
Pros:
- Affordable premiums and high coverage amounts: Term insurance provides the highest immediate death protection per premium dollar, making it an attractive option for those seeking substantial coverage on a budget ².
- Simplicity and ease of understanding: Unlike many financial products, term insurance is easy to comprehend. You pay premiums for a certain term, and in case of your demise during that term, your beneficiaries receive the death benefit ².
- Flexibility in policy duration and terms: Term insurance policies offer flexibility regarding policy duration, with options typically ranging from 10 to 30 years. It allows you to tailor the policy term to key life stages or financial commitments ².
- Financial protection for dependents and loved ones: Term insurance ensures your dependents won’t face any financial troubles during your untimely demise, providing peace of mind about your family’s financial security ².
- Large sum assured: With term plans, you can secure a high sum assured at affordable premiums ³.
- Rider benefits: Term insurance rider benefits can enhance the advantages of term insurance by increasing the policy cover at nominal premiums ³.
- Tax benefit: You can claim term insurance tax benefits as per the prevailing tax laws ³.
Cons:
- Lack of cash value or investment component: Term insurance does not have a cash value component, so you will not get any money back if you outlive the policy term ².
- No payout when policyholder survives the term: There is no payout or return of premiums if the policyholder outlives the policy term ².
- Premiums can increase at policy renewal: Although initial premiums for term insurance are generally low, they can significantly increase upon policy renewal after the initial term, especially if your health condition has worsened ².
- Limited availability of riders and additional benefits: While some term insurance policies offer riders such as accidental death benefits or critical illness coverage, the range is often more limited than other life insurance products ².
- No investment opportunities: Term insurance solely offers death benefits, with some plans including survival benefits, and does not involve any investment component ³.
- No assistance when alive: Term insurance plans are not designed to assist in terms of finances while the policyholder is still alive ³.
- No survival benefit: When the life assured outlives the life insurance policy tenure, no survival benefit will be received in the case of a regular term insurance plan