Term life insurance is among the devices that people should consider when they want to provide an immediate estate for loved ones after their death.
Although term insurance is not always the most effective type of life insurance for all of a client's death benefit needs, it can still be useful in many circumstances.
Since a term life insurance policy is not just one product, but rather many variations on a general theme, different types of term insurance are required for different client needs.
Keep in mind, term insurance, more than any other type of insurance, is pure death protection with little or no ancillary or lifetime benefits. Therefore, the two overriding considerations in the use of term insurance, regardless of the specific application, are:
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- Will death protection alone meet the need?
- Will the coverage last as long as the need?
In short, with term life insurance — as with any other decision about appropriate coverage — the product must match the problem.
Although some agents and advisors believe that whole life insurance is always a superior product, term life insurance does have an important roll to play in a client's financial plans. Keep reading 10 reasons why a client may want to consider a term life insurance policy, from the 6th Edition of "The Tools & Techniques of Life Insurance Planning" (2015, The National Underwriter Company).
Advantages of Term Life Insurance
- Greatest Death Benefit for Lowest Premium OutlayTerm Life Insurance Advantage No. 1:
Term insurance allows a person to acquire the greatest death benefit for the lowest premium outlay when the policy is first issued. However, this does not mean that term insurance is necessarily the least expensive form of insurance over the full duration of needed coverage. Because term premiums increase at each renewal, at the later ages the premium cost will far exceed the level premium that would have been charged for an ordinary whole life policy issued at the same age as the original term policy.
See also: Your 5 best arguments for life insurance (besides the death benefit
Term insurance is the best alternative for temporary life insurance needs. Usually term insurance is the best alternative if protection is needed for less than ten years. Conversely, some form of cash value life insurance will generally be the best alternative if protection must continue for 15 or more years. If the duration of the needed protection is between 10 and 15 years, the best alternative depends upon the facts and circumstances of the case. As a general rule of thumb, term insurance will tend to be better than cash value insurance at issue ages below age 45, and worse at older issue ages if the length of the need for protection is between 10 and 15 years.
See also: Planning for the modern family: 3 life insurance scenarios
Younger persons may acquire substantial face amounts of coverage at relatively low immediate cost, perhaps more than their immediate needs, and thereby guarantee that they will have the necessary level of coverage when their needs and family obligations increase in the future, even if this means they become uninsurable.
