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When term insurance makes sense

Published 2:07pm Wednesday, July 6, 2011

By JEFF S. WATERS / Guest Columnist

You want your loved ones to be financially protected if you can no longer provide for them. A life insurance policy can help you achieve that goal. But what type of policy should you buy? The best choice for you will depend on your personal circumstances. Term insurance is one option you’ll want to explore.

An advantage of term life insurance is that it’s initially less expensive than permanent insurance. When you’re young and money is tight, you may be able to purchase more protection for your family with term insurance. And this may be the time when you need the security a life insurance policy provides the most. If you’re married and have children, you’ll want to make sure your spouse and children are provided for in case something happens to you.

Term insurance covers you for a set period of time, 10 or 20 years, for example. If you want life insurance to cover a specific need, a term policy can make sense. For example, if you’re worried that your spouse wouldn’t be able to pay the mortgage without you, make sure your policy’s death benefit is large enough to cover your mortgage. Similarly, term insurance could provide for your children’s college tuition if you’re no longer around. Once the mortgage is paid off, your children have graduated or you’ve achieved another financial goal, you may no longer need life insurance coverage.

You may want to consider a term policy that offers a convertibility provision. This feature allows you to convert your term policy to permanent insurance without any evidence of insurability. So, without undergoing a medical exam, you’ll be able to convert your policy if you change your mind or your personal circumstances change.

Term insurance generally pays only if you die within the specified term. If you outlive your policy’s term, you’ll receive no money. With the return of premium insurance option, the insurance company will refund your premiums under the circumstances outlined in your insurance contract. However, the premiums are significantly higher with this option.

Which type of term insurance should you choose? Your financial professional can help you determine which of the following types may be right for you.

Straight term – The premiums and the death benefit remain the same while the policy is in force.

Decreasing term – The premiums stay the same but the death benefit decreases over time.

Annually renewable term – The premiums increase every year but the death benefit stays the same for the term of the policy.

Jeff S. Waters is a financial adviser at Waters Wealth Strategies.  He can be reached at (205) 358-7126 or by email at jswaters@waterswealthstrategies.com

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