YOU ASK:

When is it better to buy term life insurance?

WE ANSWER:

Although permanent life insurance is the better option as far as long-term protection is concerned, there are circumstances in which term life insurance is the product that best suits one's financial needs.

Generally term life insurance is an excellent short-term solution for people who have a temporary need for life insurance.

If, for example, you are young, have a family and your budget is tight, term life insurance is your best choice because the premium rates are relatively low and the benefits are high. Buying permanent life insurance in this situation can leave you underinsured in the long run.

Let us exemplify this by taking a hypothetical family:

John, 30, is a Drama teacher. He has just bought a $100,000 house and has 25 years to pay off the mortgage. His other debts amount to $5,000. John is married with two children and has no intention of having more children in the future. In John's situation, purchasing a 25-year term life policy is the best option for a number of reasons: in 25 years' time John's children will have grown up and completed their education, he will have paid his mortgage and cleared off his debts and his family will need less money to maintain their lifestyle. If John was to die within the policy term, the death benefits would cover all the current and future expenses of the family.

Note, however, that term insurance provides protection for your family in the event of your death but it does not offer any lifetime benefits. One of the greatest advantages of term life insurance is that usually you can convert your existing policy into a whole life policy at any time while it is in force, without a physical exam. This is the best choice for you if your financial situation has improved and you would like to continue having the security of insurance protection.

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