Term life insurance often seems like the best form of insurance. And most of the time it’s better than permanent insurance.
Here are five reasons why:
1. Your need is temporary
Some of the biggest needs for life insurance are temporary. The two most common reasons are repaying a mortgage and raising young children. These needs will end although your adult kids may still live with you after they graduate from school. Since term life insurance is cheaper than permanent insurance at the start, you have more money to use for other purposes.
2. Permanent life insurance is expensive
You may be convinced of the benefits of permanent coverage such as a guaranteed payout one day or tax-sheltered growth like a TFSA or RRSP. That doesn’t mean you can afford enough permanent life insurance right now. Term life gives you the protection you need today with the option to convert to permanent life later, regardless of your health.
3. You’d rather buy term and invest the difference
Your premium for permanent life insurance with a cash value gets allocated between term insurance and tax-sheltered investment growth. If you don’t like the investment choices, you can buy term life and invest the balance elsewhere. However, this only works if you actually invest the rest of the money you’ve saved by getting term insurance.
4. You want to lock in your insurability
If your health changes, you may no longer be insurable. If you still qualify, your premium rates may be much higher. That’s when you’ll realize the value of permanent coverage. Getting term life insurance gives you the right to convert to permanent regardless of your health up to a maximum age, which you’ll find in your contract. This gives you the protection of permanent insurance tomorrow and at the cost of term insurance today.
5. You’re unsure
Permanent life insurance requires more decisions, especially when there’s a savings component. With universal life, you make the investment decisions. With whole life insurance, the insurance company makes the decisions. With term 100, you get permanent coverage but no investment component. If you’re not sure what to do, you can get term insurance for now and convert later. That gives you protection, saves you money, and gives you more options in the future.
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Flickr: Alan Cleaver