Which term life policy to choose based on your needs?
Insurance products are there to fit or meet specific needs at certain points in our lives. It is important for you to be aware of just exactly what kind of policy you need for your particular case.
You should consider your family’s needs (whether you have young children who are dependent, whether you are planning on saving up for your children’s college education), as well as your personal goals (when are you planning to retire or are you saving up for a major expense such as the purchase of a house).
Kinds of term insurance based on period covered:
- Annual renewable term.
This is a term life product good for one year and can be guaranteed every year, with changes on premiums based on one’s health and circumstances.
- Guaranteed term.
Similar to an annual renewable term policy, but for a longer period. You can choose from 5 years, 10 years, 15 years or 20 years. The premiums remain the same for the term.
- Convertible term insurance.
This starts out as a term insurance product but can be converted into a permanent product later on. This allows one to afford the level of coverage he needs and then when he is able to afford permanent life coverage, he can convert the term policy. Read more about convertible term life insurance policies.
Kinds of term insurance based on amount of cover
- Level term insurance.
The amount of cover remains the same throughout the life of the policy.
- Decreasing term insurance.
The amount of cover for this policy decreases over time. Used commonly to cover a mortgage, the decreases are designed in such a way as to coincide with how a mortgage loan is decreased as it is being paid off. Read more about term life vs. mortgage life insurance.
- Increasing term insurance.
This provides a regular increase in the amount of cover. The increases may be based on a pre-set percentage or can change based on the annual retail price index. Read more about increasing and index linked term insurance.
- Universal term insurance.
This does not only provide the death benefit, but also includes an investment component. You can choose how the “extra” premiums are invested so that it earns interest and grows. Read more about term vs. universal life insurance.
Below are some examples of specific needs and situations. We hope that this can help you make your choice. Please note that we will be limiting the application to term life insurance policies only.
| Life Situation | Term Life Insurance Product to Consider | Reasons or Remarks |
|---|---|---|
|
Starting a new business with a short-term loan. |
Annual renewable term |
You only need short term coverage to protect your business and to ensure that the business can pay off the loan in the event of your death. |
|
A young person starting a career or a newly married couple. |
Convertible term insurance |
This allows you to have affordable insurance coverage but the option to convert into permanent coverage when you can afford to pay for the more expensive premiums. A permanent type of insurance is more ideal at a later age, since it is able to accumulate cash value and premiums are not likely to change drastically as term life insurance. |
|
Buying a new house using a mortgage. |
Decreasing term insurance |
This is more affordable as the sum insured decreases as you pay off the mortgage. |
|
The need for long term coverage. (such as for a person who only wants coverage until such a time as his children are financially independent) |
Guaranteed term life insurance |
This provides a medium term coverage (5, 10, 15 or20 years) where the premiums are guaranteed, meaning they will not increase based on changes on your health. |
|
Young persons wanting coverage. |
Level term insurance |
This provides high sum insured amounts for lower premiums for a specified number of years. The premiums may be more expensive when the insured gets older. |
|
Those who want to invest and want the opportunity to see their money grow. |
Universal term insurance |
This is an insurance policy and investment account rolled into one. A portion of the premiums will go to the: insurance cover, administrative and other expenses, with the rest being invested to build cash value. There are tax-related advantages to make this attractive enough for conservative investors. |
These are just general scenarios. It is best for you to study what works best for your particular situation. There are many factors that will affect your decision – your family situation, your beneficiaries, your age and medical condition and so on.
There are also instances when a permanent life policy is more ideal. Know more about this by reading our article Term vs. cash value life insurance. For instance, term life insurance is not advisable for estate planning purposes.
Updated on: 04.06.2013
To secure your family's future, fill in the form on the right and get your term life insurance quote now.