What Is Term Life Insurance ?
Term life insurance refers to the type of life insurance policy that guarantees death benefit to the beneficiaries if policyholder dies during the policy term. It provides coverage for specific term (generally from 10 to 35 years). Therefore, this insurance plan is purchased for the specific period of time. It is more affordable, and simple than whole life insurance.
Benefits Or Advantages Of Term Life Insurance
The main advantages of term insurance can be pointed out as follows:
1. Simple And Easy To Understand
One of the main advantages of term life insurance is simplicity. Because of clear and straightforward terms and conditions it is simple to understand. Its buying process is easy and shorter than other types of life insurance plans.
2. Lower Premiums
Term insurance are lower than whole life insurance policies. So, it is affordable and provides substantial coverage in less cost.
3. Death Benefit
It provides death benefit to nominees if the policyholder passes away within the policy term. So, it offers financial support to the beneficiaries that helps them to manage daily living costs.
4. Tax Deductible
Another advantage of term life insurance is that premiums can be deducted from taxable income that helps to lower the tax amount to be paid. So, it provides tax benefit to the policyholder.
5. Flexible And Customizable
Term insurance is flexible in the sense that riders can be added to enhance coverage. It can be switched to permanent life insurance as per the needs of the policyholder. Premiums can be paid monthly, quarterly, half-yearly or yearly depending upon the comfort.
Drawbacks Or Disadvantages Of Term Life Insurance
The main disadvantages of term insurance can be highlighted as follows:
1. Limited Coverage
Term life insurance is temporary in nature. It provides financial protection for specific period (policy term) only. Policy will be expired after the term unless policyholders renew it or buy a new term insurance policy.
2. No Investment Component
Another disadvantage of term insurance is that it lacks investment component. Policyholders do not get any maturity benefit like in permanent life insurance.
3. No Cash Value
As we know that term insurance provides death benefit to the nominee of the policyholder but it does not build cash value like permanent life insurance policies.
4. Increase In Premium
Another drawback of term life insurance is that premiums will increase at the time of renewal because of increase in the age of the insured person. Premiums are fixed on the basis of age and health of the policyholders.
Also Read
Advantages and disadvantages of whole life insurance
The main features of term life insurance
The main features of whole life insurance
Difference between term life and whole life insurance
5. No Borrowing Facility
It does not provide loan facility to the policyholders like in whole life insurance policy.
Pros And Cons Of Term Insurance In Brief
Pros:
* It is simple and easy to purchase
* It is affordable or cost-effective
* It provides death benefit
* It can be customized easily
* It provides higher coverage at lower cost
* It is flexible in nature
Cons:
* It offers temporary and limited coverage
* It misses investment component
* It does not accumulate cash value
* Insurance premiums increase with the increase in the age of the people
* It lacks survivor benefit