What are the Advantages of Term Life Insurance?

Updated May 3, 2024  |   Published November 1, 2022

Term Life Insurance offers temporary financial protection for a low, fixed cost. Term life insurance is particularly attractive to adults who have significant needs to cover, such as significant debt. It doesn’t have a savings or investment component; it simply covers certain costs of those people outlined in the policy. In this article, we’ll cover the advantages of term life insurance.


How does it work?

Term life insurance is easy to understand. It’s highly customizable, allowing you to purchase a policy that will cover the needs of your beneficiaries when you pass on, and you get to choose the length of the term as well. You have the option of choosing one or more beneficiaries to receive the death benefit. If you pass away before the end of the term, the beneficiaries receive the death benefit in a lump sum payment, tax free. If you’re still alive at the term limit, you have several options:

  1. Cancel the policy if you no longer need the coverage
  2. Renew the policy at your current age
  3. Convert the death benefit to a permanent life policy, like whole or universal life


Why buy Term Life insurance?

Term life insurance has benefits for many different use cases. Here are some examples:

  • Young, newlywed couples. This is the best time to buy term life coverage., because your rates are better when you purchase term life insurance at a young age. The benefits can help replace income, pay off outstanding debts, and cover future financial needs.
  • Business owners. The death benefit can be beneficial to business owners to help pay off debts and outstanding taxes. The details are outlined in a buy-sell contract, which is especially important if ownership or shares in the company are transferred to another party after the death of the policyholder.
  • Sole financial providers / stay at home parents. Losing a sole source of income can be detrimental to a family. The remaining parent can use the death benefit to replace the lost income, allowing them to continue being a stay-at-home parent instead of going to work right away. The proceeds can could be used to pay for everyday expenses, as well as current and future childcare and education costs.
  • Individuals with significant debts. The death benefit from your policy can be used to pay off significant debts in the your or the policyholder’s names.


Types of Insurance

Decreasing Term Plan

Throughout the term, your benefit decreases monthly or annually at a predetermined rate. While the death benefit goes down over time, your premium doesn’t change, which makes this a less financially reasonable plan. However, this plan can be ideal for individuals looking to pay off debts that decrease over time, such as personal loans, mortgages, or student loans.

Annual Renewable Plan

This option ensures flexibility by allowing you to renew on a year-to-year basis without the need to reapply or take a medical exam every year. The one caveat is that your premium increases each year, but the coverage amount remains the same. This type of policy is best suited for short-term debts that can be paid off within a year or two, such as personal or small business loans.

Level Term Plan

The premium and death benefit stay the same throughout the duration of this policy, making this the most attractive type of term life insurance for most individuals. This option is more cost effective in the long-run, even if it looks more expensive at the beginning. This is a good option for someone trying to secure their family’s financial future after they pass away.


Advantages of Term Life

Pros of Term Life

  • Easy to understand.
  • Inexpensive. It offers extensive coverage at a budget-friendly rate.
  • More coverage available. After determining how much life insurance you need, you may be surprised to see the final figure is $1 million or more; but term life coverage can usually go up to $10 million.
  • Tax-Free Death Benefit. If you die during your policy term, your beneficiaries will receive a lump sum from the life insurance company, and it’s tax free, which means that none of the lump sum will be withheld. What you see on paper is what they’ll receive.
  • Flexible payment and policy options. You can choose to pay your premiums monthly, quarterly, semi-annually, or annually. You may be able to save with an annual payment, as most insurers charge a processing fee the more frequently you pay. You can also choose the term length, whether it be 1 year or 30 years.
  • No penalty for cancelling.

Cons of Term Life

  • Temporary coverage. If you have permanent life insurance needs, like caring for a special needs child into adulthood, or a spouse that isn’t able to work permanently due to a disability, term life may not be the best fit for you.
  • No cash value. Term life doesn’t build cash value, meaning you can’t borrow against it. If you cancel a term policy, you don’t get any money back. Permanent life insurance provides a cash value based on the amount in the associated savings account upon policy cancellation.
  • Upper age limit. Term life has a lower age cap than permanent life insurance. Though the maximum age limit varies by company, most people can apply up to age 50 for all term lengths. Once you reach 60, you may be limited to buying a 10 or 20-year term.



Interested in purchasing Term Life Insurance, or know someone who is? Visit our webpage, or contact one of our agents.


Contact an Agent