Disadvantages of Term Insurance. While the foregoing
illustrations serve to indicate the useful purposes that may
often be derived from term insurance, it is important to note
that this type of contract presents various dangers that are
frequently overlooked and that should always be borne in mind
by the person contemplating the taking out of such a policy.
Although the absolute cost of term contracts is very low in
the younger years the sole purpose of such policies is to furnish
temporary protection.
The entire premium represents payment for this protection and
nothing is paid to the insured in case of survival at the
expiration of the policy. It is a common assertion that the chief
objection to this form of insurance is that the insured is apt
to feel dissatisfied at the expiration of the contract, and that
it is most difficult to make the average holder of such a policy,
after he has paid ten or twenty premiums, appreciate the fact that
he has already received full value in the form of protection for the
premiums paid and is therefore not entitled to any refund.
While the insured may feel that he will be in a financial
position later to make the carrying of insurance unnecessary,
or to replace his term insurance with policies at a greater
cost but which afford permanent protection, there is nearly
always the danger that he may have miscalculated the future
or may neglect to carry out his original ideas. Hence, if the
ordinary term policy is not supplemented with other forms
of insurance, such as whole-life or very long term insurance,
there may come a day when the policyholder, upon the ex-
piration of the term contract, will be without insurance at
the very time when he may need it most. Assuming that he
will be able to obtain other insurance at the time by passing the
required medical examination, his advanced age will have
greatly increased the premium, and possibly at that time, his
early expectation of a larger income not having been realized,
such increased cost may prove exceedingly burdensome. More-
over, other types of policies generally commend themselves in
preference to term contracts in that they inculcate in the
policyholder to a much greater extent a compulsory spirit of
thrift and cause the great majority to have to their credit a
large sum, accumulated from small payments promptly in-
vested, which otherwise they would not have accumulated or
would have lost or wasted. Term insurance, as already stated,
represents cost for protection only, and the smallness of the
premium should prove an attraction only where large pro-
tection is absolutely needed and where the available fund for
premium payments makes a more permanent form of pro-
tection impossible.
Related posts:
Advantages of Term Insurance
