What are the advantages and disadvantages of life insurance ?
Advantages of term life insurance
- Premiums are lower than permanent insurance allowing younger people to buy more coverage when the need for protection is usually greatest.
- Term is also useful for ensuring specific needs that will disappear in time such as mortgages or loans. Mortgage cancellation insurance, for example, is decreasing term coverage whose face amount (i.e., insurance amount) at any given time roughly approximates the amount of the outstanding mortgage. If the insured person dies, the insurance proceeds are use to pay off the mortgage.
Disadvantages of term life insurance
- Premiums increase over time as the insured person grows older. This is also true of level term coverage; at renewal time, the premium goes up and remains level for the next term.
- Coverage sees when the term ends. Even when the policy may be renewed for another term, the ever increasing premium may make coverage too expensive to continue.
- Generally, term life insurance policies don’t offer cash value or a reduced paid up insurance option.
- According to studies, covering more than 20,000 policies, only 1 percent of the policies resulted in a death claim.
While term life insurance is very cheap if purchased at younger ages, it become prohibitively expensive much beyond age 70 or 75. Buying permanent life insurance early helps to ensure its affordability. The invested cash value element accumulates over time, helping to cover the increasing cost of the pure life insurance protection element in the later years. The tradeoff is paying a higher, more or less level premium for many years, to avoid the problem un-affordability in the later years. Term life insurance, is temporary coverage intended to meet a short over a specific horizon. Permanent insurance is a long term solution for lifetime needs. Again, which one is right for you depends on your individual situation.
While you are young, with a growing family and limited budget you will probably need a higher death benefit than you could afford if you purchased only permanent life insurance.
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