6 Reasons You Shouldn’t Pay for Term Life Insurance

There are tons of reasons not to buy whole life policies, especially as an investment. Most financial advisors tell their clients to stay away from whole life and invest their money elsewhere; buy a cheap term policy in the interim as a safety net.

However, did you know that there are reasons not to pay for term life, as well? Here are six scenarios in which you should not buy term life insurance, but put the money to better use:

1) Your company already pays for a term policy. While we all like to think of leaving our family well off, in reality, if money is tight, we might be better off taking the extra bit every month and putting it toward our family’s enjoyment and standard of living, if we are already covered by an adequate term policy.

For example, suppose your company supplies you, at no charge, with a $125,000 term policy with double indemnity. If you are killed in an accident, your spouse will receive $250,000 immediately. If you are now living on $50,000 per year, that is five years’ worth of income—more than enough to allow your spouse to find a job or pay off the house.

In this case, the $30 per month you would be spending for an additional term life policy might be better spent in saving for that vacation or big-screen television you both want.

2) You are over 50 years of age. If you haven’t saved up until now, do not expect term insurance to make up for the lack. There are so many exclusions, and the price is so high, for term insurance for the elderly that you would be better off taking what you would pay in premiums and investing it in a faster-growing asset, such as a mutual fund.

3) You have a pre-existing condition. Do not throw your money away on an insurance policy which will not pay any benefits. If you already have a terminal illness, your insurance company will almost certainly find a way to exclude your beneficiaries from collecting on your new policy.

4) You have trust issues. If you need to set up a trust, whole life may be a better option than term life, as the proceeds from the whole life policy can pay estate taxes and other expenses. However, this is really a question for a financial advisor; there may be better ways to create a trust for your estate.

5) You are not sure you will continue to pay the premiums. One benefit of whole life over term insurance is that, after a long period of time, you will build cash value. With a term policy, the day you stop paying your premiums, everything you have paid up to that point is simply gone.

Therefore, it is not a good idea to buy a term policy unless you intend to keep it for a long time. It is better to think of it as a fixed monthly expense; you are paying for the assurance that your family will have money if you die, not as an “investment” which you can cash out of.

6) You have few assets and little income. If you are on a stringent fixed income and have no heirs to leave your property to, it makes little sense to spend any of your money on term insurance. Remember, insurance will only benefit your survivors, not you.