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 expiration 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. Moreover, 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 invested, 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 protection is absolutely needed and where the available fund for premium payments makes a more permanent form of protection impossible.