Why Term Life Insurance is Important?

Everyone cannot afford to cover his or her life insurance needs with a permanent life insurance policy.  Believe it or not; some individuals do not have a need for permanent life insurance; instead, these individuals require life insurance for a short period of time.  When people are under the age of 65, needing life insurance for ten years or fewer, it is common for these individuals to purchase term life insurance.

While “buy term and invest the difference” has become a popular saying among some financial planners, some individuals ought to follow this advice.  For example, not every person can afford to purchase a $300,000 traditional permanent life insurance policy such as whole life insurance or a hybrid permanent life insurance policy such as variable life insurance.  However, the purchase of a traditional term life insurance policy should be cheaper than the purchase of a traditional or hybrid permanent life insurance policy.

In many cases, young people do not have a lot of discretionary income.  They are just starting their careers and are aggressively paying down their student loans.  Since these young adults, may also be starting a family and purchasing a home, these individuals probably possess a high need for life insurance.  It is quite possible that a twenty-five year old may require a $500,000 life insurance policy, depending on his or her responsibilities.  This same twenty-five year old can usually afford to purchase a term life insurance policy without having to sacrifice his or her financial goals.

Sometimes, people are able to conceive of a day in which they might need some form of permanent life insurance.  Since this need will occur in the future, these individuals have the option of buying a term life insurance policy with an option to convert it to a traditional or hybrid permanent life insurance policy, e.g., whole life, universal life or variable life insurance.  Remember, some term life insurance policies will only allow you to convert these policies for a certain number of years.  For example, it is not uncommon to find a term life insurance policy that allows the policyholder to convert for only the first ten years of a twenty year term life insurance policy.

Term life insurance policies with convertibility options usually cost more than term life insurance policies without convertibility options.  Lastly, if you decide to convert your term life insurance policy into a permanent life insurance policy, you will likely pay a higher price for the permanent life insurance policy than the term life insurance policy.