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Term Life Insurance Pros And Cons

By Mike Heuer

When it comes to term life insurance, there are many advantages and disadvantages. Comparing the term life insurance pros and cons can help determine if buying a term life plan is the right choice.

Among the greatest advantages of term life is the low cost. For as little as $7 per month a $125,000 term life plan can be bought, and about $15 per month can get a $250,000 term life plan that will be good for periods usually ranging from 10 years to 30 years in length. Comparable whole life insurance plans easily can run more than 10 times the cost of a term life insurance plan with the same death benefit.

Another advantage of term life insurance plans is the fact most of them do not require a health examination from an insurer-approved doctor. Instead, the person whose life is to be insured needs to only provide his or her age, basic health information, whether or not tobacco products are used. Insurers then compare the information to mortality tables that determine the likelihood of someone dying while a life insurance plan is in effect.

In most cases, the person whose life is insured outlives the term for which insurance protection is provided. Studies show anywhere from 90 percent to 99 percent of term life policies do not pay a death benefit and simply expire. That can be good news for the person who is insured by the policy. And the low cost of term life insurance plans makes them a good way to obtain life insurance protection at a significant savings over comparable whole life plans. Some financial advisors suggest buying term life insurance and using the monthly savings when compared to whole life insurance to invest in mutual funds and other vehicles to grow a retirement income.

While there are many advantages to term life plans, there are some caveats. Among the detractors of the term life insurance pros and cons is the fact they do not grow cash value over time and do not provide retirement income unless the named insured dies while the policy is in force. So unless the policyholder is disciplined and actually makes monthly investments in retirement vehicles to grow a retirement income, there will be no additional retirement funds when work careers are over.

Another disadvantage of term life plans is if the decision eventually is made to convert a term life plan into a whole life insurance policy, which is possible with most term life policies, the premiums for the whole life plan will be much higher than if buying the whole life protection from the outset. The cost could be very prohibitive and require either a greater amount of personal income be used to pay the premiums or a lower death benefit chosen to offset the cost.

Unlike term life plans, which do not grow cash value, whole life policies require policyholders to pay the premiums used to grow the cash value over time. So if converting to a whole life plan later, the cost will be much higher.