The pros and cons of term life insurance

Quotes, qualifications, and medical exams can all make the process of choosing life insurance feel daunting. However, term life insurance can effectively be a simple product that offers some much-needed security and peace of mind.

Here’s a simple guide to the pros and cons of term life insurance.

The benefits of term life insurance

  • Term life insurance is designed to offer coverage for a fixed period of time — typically between 10 and 30 years. The goal for term policies is usually to provide coverage until certain milestones are reached — children graduating college, a spouse reaching retirement age, or a mortgage being fully paid off are some common examples. A well-planned term policy could expire just as your need for it is ending.
  • Term life insurance typically has affordable premiums for the coverage. While your policy is in place, term is likely to offer a great value in terms of coverage per dollar spent.
  • Life insurance payouts to beneficiaries are tax-free. Having a life insurance policy is a great way to guarantee a certain payout to your beneficiaries regardless of market conditions and without having to spend a year in probate.
  • Some term policies can be renewed annually or converted to a permanent life insurance policy when the term ends, allowing for a certain degree of flexibility. The exact requirements for renewals or conversion will vary from insurer to insurer.

The downsides of term life insurance

  • Term life insurance is likely to require full medical underwriting. That means if you have pre-existing health conditions, you may be looking at a substantially higher premium, or even be denied the insurance policy you’re looking for.
  • There’s the possibility of getting nothing for your money. In an ideal world, everyone would outlive their term life insurance — but in that best case scenario, you’re paying into a life insurance policy for 10, 20 or even 30 years without seeing a penny in return. Permanent life insurance is a different option that has a guaranteed death benefit even after a long and happy life, although it also comes with higher premiums.
  • Premiums can increase over time. Level term life insurance has one premium locked in for your entire term — but if you want to renew that after your term expires, your premiums may go up. If you’re buying life insurance at a young age, locking in low whole life insurance premiums may offer more stability. Always get life insurance quotes from an agent to get the best packages.

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