What are the Pros and Cons of Term Life Insurance plan?

Term Life Insurance policy is one of the simplest and purest forms of life insurance. It is designed to provide financial cover to loved ones in the event of an untimely demise of the insured. The policy offers death protection by paying a certain fixed premium amount for a specific policy tenure. This death benefit received by the beneficiary can be helpful to cover the future upcoming financial needs. However, buying the best term insurance plan needs an educated choice which can be derived by understanding the pros and cons of term insurance.

Pros of Term Life Insurance Plan

Term life insurance plan as we know offer life coverage and protection to the insured. Apart from these advantages, the term insurance has the following additional strong features:

1. Cost-Effective: Term life insurance plan is one of the most cost-effective life insurance products. Insured can avail huge life coverage at a cheaper premium cost, making it one of the most affordable options for everyone. The premium rate of term insurance is almost 6 times lesser than the premium rate of other life insurance policies.
2. Higher Coverage : Term insurance plans not only come at a lower cost but also offer higher coverage to secure the future of your dependents in the true sense.
3. Simple: Term Insurance Policies are easier as compared to the other life insurance policies like the endowment plans or money back plans. The other life insurance plans are a combination of risk cover with savings; however, a term plan is simple as it suggests – pay the premium amount and get life coverage for the policy term opted.
4. Multiple Policy Term and Premium Payment Term Options: Term insurance comes with multiple policy and premium payment terms. Policy terms can be as long as the whole life, whereas you can choose from different premium payment terms – Regular Pay, Limited Pay and even Single Pay. Where regular pay will have the same policy and premium payment term, limited pay will have a premium payment term less than the policy term. Single pay is defined by the name itself – pay the premium once and secure the future of your dependents in case you do die during the policy term.
5. Flexible: Term insurance policies offer the highest degree of flexibility in two aspects namely ‘renewable’ and ‘convertible’. The insured can renew their term insurance policy without any medical examination. Additionally, the insured can convert their term insurance policy into an endowment policy for the existing sum assured with an increased premium amount. Another important flexibility that a term insurance offers is that you can opt-out of this term insurance contract hassle-free i.e. once you stop paying the premium amount the risk cover provided by the policy ceases and the policy comes to an end. The insured does not have to worry about the payout as unlike endowment policies, term insurance only offers the death benefit and does not have any savings component.
6. Surrender Value : Life insurance policies, including term plans, attain a surrender value a few years after inception. Once the policy acquires a surrender value, you can surrender the policy and receive the attained value.
7. Tax Benefits: All term insurance policies offered by various life insurance providers offer a tax benefit to the insured. Even though the premium amount of term insurance policies is less, it is still eligible for tax benefits under section 80C of the Income Tax Act.

Cons of the Term Life Insurance Plan

No doubt the cheaper premiums of Term Insurance policy are one of the most tempting reasons to buy life term insurance, but as the famous saying says every coin has two sides. So, it is important to weigh the drawbacks before purchasing the term life insurance plan. The cons of term life insurance plan are as under:

1. No return on Investment: Term Insurance Policy is designed where the insured pays a particular premium amount only for life coverage i.e. the policy is not designed to build cash value. The premiums paid by the insured to the insurance company are collected with an intent to pay the death benefit to the beneficiary in the event of the demise of the insured. So, in case the insured outlives the policy term he/she will not receive any benefit. However, some term plans come with a ‘Return of Premium’ feature, which means the return of all the paid premiums to the policyholder in case he/she survives the policy term. Maybe the premium amount for such plans could be higher than that of a normal term plan.
2. Term Life Insurance premium is based on the age of the insured, so with advancing age, the premium amount also increases. So, at older ages, the term life insurance plan cannot be as economical. Additionally, once a prospective customer is old i.e. beyond the age of 65 or 70 years, buying a term life insurance plan is difficult as most of the insurance providers either do not offer term plans or offer them with stringent conditions that might be disadvantageous for the insured.
3. Term insurance policy is not for those who are planning to save money for a specific need i.e. higher education, marriage, retirement planning, etc.
4. The term life insurance policy is also not designed to provide financial assistance to your family while you are alive. Additionally, the term insurance policy does not offer a surrender value or loan facility.
5. Wealth creation goals cannot be achieved by buying a term insurance plan. Similarly, they cannot offer a hedge against inflation, as they are NO PROFIT PLANS.

Final Word

Term Life Insurance Plan is one of the best life insurance products for most people. The main motive of the term insurance plan is to provide coverage during the years when an insured has the most financial liabilities. The plan is ideal for individuals who want to cover themselves and their families from financial responsibilities like education loans, housing loans, etc. Additionally, it is the cheapest and simplest life insurance plan available in the market.