Term Life Insurance: When is it the Best Option?

By Compuquotes Team on May 1st, 2008

Term life insurance has some definite advantages that make it the best option in certain situations. It might not be the insurance that you want permanently, but it definitely has its uses.

How does Term Life Insurance Work?

Term life insurance, as opposed to whole life insurance, is a temporary type of insurance. When you buy a term life policy, you buy it knowing that you're not going to have it forever. The terms of the policy-the amount you're covered for and the length of that cover-are up to you. If you die (or develop a critical illness, if you have that cover) while the policy is in effect, your beneficiary will receive a pay-out. Once the policy ends, your coverage does too.

When is it Most Useful?

This may sound like a pointless type of insurance, in comparison to whole life. After all, if you don't die while the term policy is in effect, the premiums you paid are more or less wasted money. In addition, term life has no cash value, so there are no dividends, and you can't withdraw money against the value of the policy.

There are, however, certain situations in which term life is the ideal solution. The key is taking advantage of the lower premium costs of term insurance to cover you for life stages that you know are going to be temporary.

Young Newlyweds

Term life insurance can be an ideal insurance solution if you've just married but are not planning on starting a family right away. Term life is a great solution for you and your partner in this case, because it's cheaper than whole life insurance-especially when you're young and in good health. This makes it an ideal option if you're young and don't have much money to spend on insurance. If you're marrying in your early twenties and have decided to wait five years before having children, for example, you can take out term policies that cover you for those five years. You and your partner will still be young and healthy at the end of that time, meaning you can buy a new term policy or even whole life and still pay relatively low premiums.

Temporary High Risk

Term life insurance is also an excellent option to cover you for a high-risk situation that you know is going to be temporary. If you're temporarily working in a high-risk job, for example, a term life policy to cover you for that time might be a better option than a reassessment of your whole life policy (if you have one). In the case of the term policy, it may cost a little more due to the high-risk aspect, but this will be offset by the fact that it's a short-term policy.

Term Life for Mortgage Cover

Another excellent option for term life insurance is using a policy to cover your mortgage. If you have a mortgage and want to leave your dependents money to pay in full if you die, a term life policy for the sum of your mortgage is a good solution. This gives you good lower-cost protection, as your policy will only run for the life of the mortgage. You can reduce the cost even more by choosing insurance that decreases the amount you're covered for as the amount owed on your mortgage decreases.

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