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 Studies
show that less than half of American adults in Maryland
own individual life insurance, and the average American
adult has just $45,000 of life insurance. Relying on
the group life insurance provided at work can build
a false sense of security, because coverage is usually
insufficient for family needs and generally ceases
when employment terminates. Experts agree that few
people protect their own “full value” with
life insurance, leaving their families at risk.
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Advantages and Uses of Term Insurance
Some of the advantages and uses of term insurance are:
- Initially, the cost
of term insurance is low, making it useful for individuals
or businesses who may have a large need for insurance but
limited
financial resources to pay for it.
- As temporary
protection, it is often used to help cover temporary needs.
For example, decreasing term is frequently used to cover
the decreasing
financial obligation associated with debts.
Term insurance can be flexible. Frequently it is used
to provide additional
protection for an insured. For example, a husband has a relatively
small whole life policy and becomes a father of twins. His
responsibilities
have suddenly changed and there is a need for possibly large
amounts of additional life insurance. Term insurance could
provide the
solution to this problem. Often, the additional insurance is
added to the
existing policy by means of a rider.
Disadvantages of Term Insurance
Some of the disadvantages associated
with term insurance are:
- Over a long period of time, renewable term insurance
becomes very
expensive. Although initially the level term premium is low,
it increases
with each renewal, based on the increased age of the insured
and the
increased risk of mortality for the insurance company. Thus,
a relatively
low premium at age 35 becomes an expensive and sometimes
prohibitive premium at age 55 or 60.
- Even
though the premium for decreasing term remains level for the
life of the contract, this level premium pays for less and
less insurance. In
the later years of a decreasing term policy, the actual cost
of the remaining
insurance tends to be expensive.
- One of the disadvantages of term insurance
is its very nature—it is temporary
protection for a limited period of time. If the policy is not
renewable
or the increasing cost of the policy is prohibitive, the insured
can be
left without insurance at a time (older age) when he or she
needs the
protection the most.
- Term insurance is pure death protection only. It offers
no living benefits,
such as guaranteed cash values.
- Even if the term policy is renewable, it generally
is not renewable
beyond a certain age such as age 65 or 70. Again, there is
the danger of
losing or not being able to afford the protection at these
ages.
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