What is a common limitation of term life insurance?

What is a common limitation of term life insurance?

• A. It can only be purchased at a young age.
• B. It has no cash value.
• C. It is more expensive than whole life insurance.
• D. It cannot be extended past the term.

Answer: (B)

Term life insurance is primarily designed to provide coverage for a specific period, known as the term. One of its notable limitations is that it does not accumulate cash value, which is a feature often associated with permanent life insurance policies, such as whole life or universal life insurance. In these permanent policies, a portion of the premium goes towards building cash value over time, which can be accessed by the policyholder. However, with term life insurance, all the premiums paid exclusively go toward the cost of coverage for that defined term, and once the term expires, there is no cash value that can be utilized or borrowed against. This feature makes term life insurance generally more affordable than permanent life insurance. Understanding this limitation is crucial for individuals who may seek to use life insurance as a financial tool beyond just death benefit coverage.

Term life insurance is primarily designed to provide coverage for a specific period, known as the term. One of its notable limitations is that it does not accumulate cash value, which is a feature often associated with permanent life insurance policies, such as whole life or universal life insurance. In these permanent policies, a portion of the premium goes towards building cash value over time, which can be accessed by the policyholder.

However, with term life insurance, all the premiums paid exclusively go toward the cost of coverage for that defined term, and once the term expires, there is no cash value that can be utilized or borrowed against. This feature makes term life insurance generally more affordable than permanent life insurance. Understanding this limitation is crucial for individuals who may seek to use life insurance as a financial tool beyond just death benefit coverage.