Home » Insurance » Life Insurance » Term Life Insurance

Term Life Insurance: What Are the Pros and Cons

Updated: October 23, 2018

There are so many different types of life insurance available, which can confuse customers about what is best for them.

One of these policies is term life insurance, which often appears enticing to people who first hear about life insurance.

But it is important to remember that there are both pros and cons to term life insurance.

While the policy is usually cheaper up front than whole life insurance, these savings rarely last for more than a decade.

Most individuals who get term life insurance for their entire lives will pay more than their counterparts who have whole or universal life insurance.

What is Term Life Insurance?

Term life insurance is a type of policy where you are only getting protection for a set amount of time. For example, you might engage into an agreement where you pay premiums and receive death benefits within a 20-year period.

Term life policies are often easier to procure, especially if you are older. Term life insurance for seniors is often a very good option.

This means that when your 20-year period is over, you will have to renegotiate the policy with the insurance company if you are still alive. It is this situation that creates financial issues for individuals who depend on term life insurance for too long.

Term life policies are often easier to procure, especially if you are older. Term life insurance for seniors is often a very good option. Seniors are also less worried about the policy expiring within 20 years, especially if they are already at or near retirement age.

Why does term life insurance start as cheaper than whole life coverage? Because insurance companies are taking less risk insuring someone for ten or twenty years, compared to their entire life.

This lower risk for the insurance company means they can still make a profit while offering lower premiums to customers.

What is Whole Life Insurance?

If you talk to experts or insurance agents, they will always recommend whole life insurance. You may think they are trying to sell you a policy with higher premiums, but the benefits of whole life are undeniable.

Whole life policies are also a better way to build a long-term nest egg for your family when you pass.

These policies will last for your entire life. If you get a whole life policy and keep paying its premiums, you never have to worry about life insurance again. There is no renegotiation or increase in your premiums, even if you are old and sick midway through the policy!

Whole life policies are also a better way to build a long-term nest egg for your family when you pass. Aside from the high death benefit, you can build the policy’s cash value with your premium payments for multiple decades.

But the premiums for whole life are higher during the first ten or so years – when compared to term life insurance.

It is often this higher up-front cost that turns people away from whole life insurance, especially if they do not have the financial means to comfortably pay the policy premiums.

What are the Pros of Term Life Insurance?

The biggest positive about term life insurance is the initial price. For someone who is skeptical about the benefits of life insurance, it is a good entry into these types of policies. You pay a minimum premium rate and still receive the protection for ten to twenty years.

Term life coverage is also a great way to cover any gaps in your life insurance protection.

There is a reason why term life insurance rates over 50 are so frequently requested. Seniors who never got insurance before cannot afford the high whole life premiums, which leaves term life as their best option.

Term life coverage is also a great way to cover any gaps in your life insurance protection. For example, you may have lost your job and related whole life policy over the past few months. If you want to keep some form of protection, you can get a cheap 5-year or 10-year term life policy for the immediate future.

It is also easier to procure a term life insurance policy.

Because of the lower risk with these policies, insurance companies are less stringent about the physicals and other information they require before committing to the offered quote.

What are the Cons of Term Life Insurance?

Despite all those benefits, there are a number of issues with term life insurance. The biggest problem is how much money you will end up paying if you get term life insurance for 40 to 60 years.

As you are older at the end of the term, you may get a much higher premium than you did 20 years ago.

While a term life policy seems cheaper than whole life at the beginning, it often ends up being more expensive. This is because you must renegotiate the premium rate when the term expires.

As you are older at the end of the term, you may get a much higher premium than you did 20 years ago.

In contrast, a whole life policy always has the same premiums. While those premiums may seem more expensive when you are 30, they will appear cheaper than term life when you go to renegotiate that term life policy at 50 or 60.

The lack of permanent protection is also a negative associated with term life insurance. When you get a whole life policy, you can stop worrying about your protection ever expiring. This is not the case with term life.

What Policies Are Right for You?

Everyone has different circumstances. If you are 60 or 65 years old and you have never bought life insurance in the past, you may baulk at the higher price of whole life insurance.

Whole life will give you a much better chance of building a nest egg to leave your family, with the policy’s cash value boosting the agreed death benefit your dependents receive.

This is understandable, especially if you can get a good deal on 20-year term life insurance. There is a high probability you will pass away during those 20 years, which means the term life policy may be as permanent in your situation as a whole life policy.

But if you have engaged in the proper planning with regards to life insurance, and you are purchasing a policy in your 30s or 40s, you should seriously consider whole life insurance.

Whole life will give you a much better chance of building a nest egg to leave your family, with the policy’s cash value boosting the agreed death benefit your dependents receive.

It is even possible to withdraw the cash value in your policy, or borrow against this sum of money. These added benefits are not available with term life insurance policies.