Term Life Insurance Disadvantages

Posted on August 11, 2010 and updated September 9, 2010 in Insurance Types, Life Insurance Canada News, Term Insurance 2 min read

Term life policies have many advantages and can be a very effective way to cover everything from short to mid-term life insurance needs, such as a mortgage or a line of credit.

However, less than 2% of all Term policies ever pay out – either because the insured outlives the term, or the plan becomes too expensive. Use caution because Term life policies do have many disadvantages that are often misunderstood.

The following are five Term Life insurance pitfalls you should be aware of:

1. The premiums rise substantially as the insured ages. An example would be a 40-year-old, male non-smoker applying for $250,000 of 20-year term coverage. The initial premium would be $35.55 a month – pretty cheap, but the renewal premium becomes $502.20 a month.

2. Most term policies expire at age 80 or 85. However, because the cost increases so substantially as the insured ages, most policy holders will not keep the policy beyond the initial renewal.

3. There are no cash values. If the insured cancels at any time during the term or at the term renewal point, there are no cash values or return-of-premium within the policy.

4. A term policy leaves very little room for error. If the insured misses a payment, they only have a 31-day grace period on the term policy, after which time, the policy lapses.

5. Not all term policies are renewable and convertible. If you are buying a term insurance policy, make sure the policy is renewable and convertible. This way, the insured will be certain to convert his or her coverage without a medical if his or her health changes during the term.

For more details you can contact us at 1-866-899-4849, or visit our Term Life Insurance Quote Page

 

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