Does Everyone Need Term Life Insurance?

There exists a common misconception that term life insurance is something everyone should buy. Let me tell you a little secret: that is not always true.

There are many reasons why a term plan is a good idea: it is cheaper than other forms of insurance, offers a tax-free death benefit, and usually can be converted into a permanent life policy.

But is a term plan the right choice for YOU?

Our job as insurance advisors is to remind people constantly that in insurance, the “one size fits all” mantra does not work. If you are looking at insurance, particularly life insurance, you will have to find a policy that fits your unique needs. In this article, I will highlight the reasons why a term plan does not work for everyone as well as identify those individuals who should avoid such plans.

Disadvantages of Term Life Insurance

Everything has its pros and cons, so why should term plans be exempt? You already know about the advantages of buying term life insurance. Now take a closer look at its drawbacks.

1.    They Have to Be Renewed – The biggest disadvantage of term life insurance is that it has to be renewed when the term ends. Thus, if your term policy has a duration of, say 10 years, you must remember to renew it once the decade is up. Otherwise, you run the risk of being without insurance cover when your term policy ends.

2.    Higher Premiums as You Age – The problem with regular renewals is that each time you get a new policy your premium will be determined by your age at the time of renewal. When you buy your first 20-year term plan as a 35-year-old non-smoker, the premiums may be quite affordable. But when you shop for a similar plan at the age of 60 years when the plan comes up for renewal, the premiums could seem quite exorbitant.

3.    An Upper Age Limit – Most term plans cannot be renewed beyond the age of 80 or 85 years. So if you have dependents and are getting on in years, you may want to shift to a whole life policy before the term plan ends.

4.    No Cash Value Feature – The problem with term insurance is that you win only if you die. So if the term ends and you are still alive, it may feel as though all that money has gone down the drain. Moreover, term plans have no cash value. So if you default on a premium because of a fund crunch, the insurer cannot take it out of the accrued cash value and your policy may lapse.

Who Should not Buy Term Life Insurance

Term insurance works fine if you are in your 30s, not so much when the years keep piling on. People in their 50s and above who have dependents should seriously consider switching to a whole life policy to save on future hikes in premium and ensure seamless coverage throughout their life. On the other hand, people (not just older folk) who do not have and will never have dependents should look for policies that accumulate cash value. These will help you build a corpus for retirement as well as enable you to borrow from the cash value of the policy in your time of need.