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  • What are advantages, disadvantages of term life insurance?
  • July 3, 2013
  • Tony Steuer

    By Tony Steuer, CLU, LA

    Unfortunately, there is no such thing as perfect life insurance. Every policy – whether its term or permanent life – has a variety of advantages and disadvantages.

    Term life may not be right for everyone, but it may be perfect for some. In order to determine this, you have to make sure that the advantages outweigh the disadvantages.

    Use the list below to help determine if term life insurance is right for you and your insurance needs.

    Advantages of Term Life Insurance

    – Premiums are lower than permanent insurance, allowing younger people to buy more coverage when the need for protection is typically greater.

    – Term is also useful for insuring specific needs that will disappear in time such as mortgages or loans.

    – Mortgage cancellation insurance, for example, is decreasing term coverage, which has a face amount (i.e., insurance amount) roughly equal to the amount of outstanding mortgage. If the insured person dies, the insurance proceeds are used to pay off the mortgage.
    – 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.

    Disadvantages of Term Life Insurance

    – Coverage ceases 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 policies don’t offer cash value or a reduced paid-up insurance option.

    – According to a 1993 Penn State University study, which covered more than 20,000 policies, only one percent resulted in a death claim.

About Tony Steuer

Noted insurance author Tony Steuer has spent over 25 years in the life insurance industry. Steuer’s leadership roles include serving on the California Department of Insurance Curriculum board and the National Financial Educator's Council Curriculum Advisory Panel as well as having served as President of the San Francisco Chapter of the American Society of CLU & ChFC, President of the leading Life Insurance Producers of Northern California, and as a board member of the San Francisco Life Underwriters Association. Mr. Steuer is the author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, The Questions and Answers on Life Insurance Workbook and The Questions and Answers on Disability Insurance Workbook - the first two were awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy. Steuer holds a Chartered Life Underwriter (CLU) designation and also holds the Life and Disability Insurance Analyst License, a designation that is held by less than thirty people in California.

Creative Commons License
Questions & Answers on Life Insurance by Tony Steuer, CLU, LA, CPFFE is licensed under a Creative Commons Attribution 3.0 Unported License.

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