What is Term Life Insurance

By Simon Smith

The purpose of term life insurance is to protect people against financial disaster when they are unable to earn a living because of a permantent injury, or to give their dependents some type of income after they die. Whether to purchase term life insurance is an important financial decision about protecting you and your families lifestyle.

Term life insurance is often the most inexpensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis. This is because term life insurance has no cash accumulation.

When might Term Life Insurance Used

Term life insurance is often a good choice for people

• in their family-formation years, especially if they're on a tight budget, because it allows them to buy high levels of coverage when the need for protection is often greatest
  
• is a good way to supplement other coverage when you have added financial responsibilities for a given period of time 
  
• is an excellent way to replace income for young growing families if a wage earner dies 
  
• is useful for estate planning with blended families
  
• is useful as a way to fund a cross purchase buy sell agreement, particularly where one owner is significantly younger than another 
  
• is right for you if you have temporary life insurance needs such as making sure your children can attend college or that family living expenses are paid 
  
• is right for you if you are taking on new debt (such as a home equity line of credit, a home mortgage or a car loan). 

For those reasons, I and many other people say that term life insurance is usually the best bet for people looking for basic insurance protection, that is, people who want their loved ones to be cared for in the event they die prematurely or are permanently disabled. 

Health

As with all life insurance the best time to get term life insurance is when you are fit and healthy. The cost of term life insurance typically goes up as you get older or as your health declines. In other words the better your health at the time of application, the cheaper your life insurance premium should be.

How much you pay for life insurance will depend on a number of risk factors, including your age, your health, whether you use tobacco, your family health history, and the type and amount of insurance you're buying. 

The answers you give on your application, along with the results from the medical exam and your past health history, will help the insurance company determine whether to offer you an insurance policy, and if so, at what price. 

If you’re not healthy, taking steps to improve your health may help you find cheaper life insurance. 

If your health has worsened or (in a worse case) you have become uninsurable (because of extreme health problems), the last thing you want to do is cancel your existing term insurance policy. 

Financial

The primary purpose of insurance is to provide for the financial responsibilities of the insured.  Term insurance allows for this to occur in an affordable manner.

Whether it's sending children to college, purchasing a new home, or starting a business, adequate financial resources are essential.  You can never be replaced but, with term insurance, your family could probably handle the financial pressure that comes with the loss of income due to premature death.

When planning for your families financial future it's important to keep in mind that term life insurance expires and it is possible to outlive your policy. 

Conclusion

For assistance in evaluating your insurance needs, consult a professional advisor, who can help you decide whether the insurance benefits offered by term insurance are sufficient to meet your financial objectives.

When all is taken into consideration, you may find that a good quality term life insurance is best for you. If you have financial responsibilities then having term life insurance cover is the very least you could do.

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