Pros And Cons Of Term Life Insurance

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Term insurance plan is a life insurance policy which offers you financial coverage in case of loss of life during the term. You pay a yearly premium against the policy to the insurance company. This policy gives death coverage to the policy-holder and offers the sum assured to the family or next of kin. The term insurance policy provides high coverage for a low premium. This plan ensures that the future of your family is safe even after your demise.

A term insurance plan and a life insurance plan differ slightly from one another. A term insurance policy offers the sum assured to the nominee of the policyholder if the policyholder dies within the term. There are no maturity benefits in a term insurance plan. In case of a life insurance plan, the process of offering the sum assured to the nominee in case of the policyholder’s loss of life is the same. However, if the policyholder survives the term, there are certain pre-decided maturity benefits. But a term insurance plan is more economical than a life insurance plan.

Here are the pros and cons of term insurance so that you can make a well – informed decision.

Pros of Term Insurance Policy

Inexpensive: A term life insurance is the cheapest way of insuring your life. It is the lowest type of life insurance available in the market. While both term and whole life insurance policies offer the death benefit, the premium for the term life insurance is much lower. This is mainly because there is no maturity benefit. However, this enables you to make separate savings along with paying a premium for life insurance. The death benefit, which is the sum assured of the whole and term life insurance, will be the same, but you will pay a higher premium for whole life insurance. So, it is best to choose a term life insurance instead.

Simplicity: A term life insurance is simple. There aren’t any frills associated with term insurance policy. They are simple to understand and easy to buy. There aren’t a lot of the risks related, such as those with endowment plans. A cash value plan, such as whole life insurance can get a little complicated for a layperson since there are a lot of terms and conditions to comprehend. All you need to do is pay a premium for a specified term. Continue till the term is over or claim if the policyholder loses their life.

Flexibility: A term insurance policy is valid for a fixed term. You don’t have to pay the premiums for it your entire life. For example, if you and your spouse have a single child, your child is dependent on you. So, you can buy a term insurance policy for 40-45 years. But if the child has grown up and does not need financial assistance any longer, you can stop paying your premium for term life insurance without losing any maturity benefits. It is extremely easy to opt-out of this kind of life insurance policy.

Cons of a Term Insurance Policy

Escalating Premiums: As you age, your risk of death or acquiring a critical illness rises. This leads to higher premiums against a term insurance policy. A term insurance policy is known for its steep rise in the amount in premiums paid yearly. You must account for it when choosing this plan.

No Maturity Benefit: There are no maturity benefits in a term insurance policy. The policy does not have a pre-determined sum to offer if you survive the term period. However, if you choose a TROP policy, you get all the premium you have invested in the plan upon maturity.

No Capital Creation: Most people look at life insurance as a type of savings. But term life insurance does not allow this feature. The premium paid, if not opted for a TROP plan, is lost at the time of maturity. There is also no maturity benefit which offers a lump sum cash at the end of the term. Hence, wealth creation through a term life insurance is not possible.

Even with all of these shortcomings, term life insurance is one of the best types of life insurance policies out there. It is economical and easy. Hence, it is one of the most popular life insurance policies in India.

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