You might be heard about the level term life insurance policy, even you may hold a policy now. Of course, there are some advantages of that policy, but have you think about the disadvantages of level term life insurance policy? If the answer is ‘No’, you are in the right place. Through this post, you will learn the disadvantages of level term life insurance policy.
The insurance policy has been widely used all over the world since it was first launched. This is due to the unforeseen events that may happen to someone in their daily activities.
To be on the safe side it is important to purchase a life insurance policy. A life insurance policy will assist them in time of need, especially for their family.
There are several insurance policies available today and most of them are essential for the daily life. However, the most important insurance coverage that is required for everyone is to possess the life insurance policy.
One of the categories of the insurance companies is the level term life insurance which is adopted by many people. This is not a permanent life insurance policy but the benefits of death and the premium rate remain the same for the whole term of the policy.
The policy is made to offer death protection that is affordable for a short-term period and the benefits are paid if the policyholder dies. However, this type of insurance has some flaws and shortcomings which will show you the disadvantages of level term life insurance policy.
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Disadvantages of Level Term Life Insurance Policy
1. Prices increase with time
After the initial guarantee period, the payments of premium for the level term life insurance policy increases gradually. For example, if you purchase a five-year level term life insurance policy, after the five year period lapses you can expect the premium to significantly increase when renewing the policy. This can be a disadvantage to you especially if you choose the policy at a young age. The premium will be higher than the life term policy. As you grow older the price will increase and you will pay more when the policy expires as you wouldn’t want to develop old age complications without a coverage and finally ending up into the category of life insurance of high risk.
2. The policy buyer doesn’t benefit
The level term life insurance isn’t enjoyed by the individual buying the insurance policy. This is because the policy is only paid back after death and so the benefits might get lost due to dubious deals of the brokers or even when the policy is paid the owner is not there to benefit from his long and hard labor which is left to the beneficiaries.
3. Over time it becomes cost prohibitive
The level term insurance has been designed to be of a short-term period. Therefore after some time, it might become cost prohibitive. If you are looking for life insurance that goes beyond your life expectancy, then you shouldn’t opt for the level term life insurance policy.
4. Limited coverage
It’s always difficult to predict the future when choosing the level term life insurance policy. This, therefore, gives the policy buyer a difficult time in determining how long they might need the policy. Scenarios arise where a policyholder applies for ten-year coverage only to later realize that you needed a longer term policy and more coverage years.
5. Doesn’t last a lifetime
In this insurance cover, you might not be able to have the ability to keep your level term life policy. This is because the premiums increase and that eventually become cost prohibitive. As a matter of fact, most of the people who purchase the level term life insurance policy end up living beyond the coverage and finally dropping it because of the high costs which they might not be able to continue paying.
6. Other expenses associated
The level term life insurance policy can be quite expensive and a challenge, because the policy is associated with extra charges which include mortality charges, expense charges and the possibility of tax implication issues, is also a reality. However, if the policyholder surrenders the cover during the initial years of the policy contract, the charges associated with surrendering the policy back to the insurance provider may be assessed.
7. No value of cash
There is a policy in most insurance policies known as the return of premium or ROP which builds the value of cash. However, most level term life insurance policies don’t have their ability to grow the cash and they don’t build equity of any kind.
8. The insurance is not guaranteed
Any guarantees given in any policy are contingent on the ability of the issuing company to pay the claims the level term life insurance policy is not guaranteed by any agency of the government or the FDIC. They are also not guaranteed by any bank or savings association because they are not deposits or endorsements of the same institutions.
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With the disadvantages of level term life insurance policy clearly laid out above it will depend on you whether you would want to purchase this kind of insurance policy or you would renew it the moment it reaches the period of expiring. Before making any decisions clearly weigh your options.
These are some of the disadvantages of level term life insurance policy. I hope these points would help you to understand the risks of having a level term life insurance policy. If you already have a level term life insurance policy, write your thoughts in the comment box below. Also, you can share this post with your friends and family by clicking one of the social share buttons below.