In some ways, insurance is like a parachute. You tote one around not because you expect to need it, but because on the day you need one you need it really, really badly. With life insurance, that need is even more compelling because it won't be you who uses the parachute. Instead, it will be everyone who depends on you. Fortunately, term life insurance is startlingly inexpensive and can be readily purchased when necessary.
Term Insurance Basics
Term life insurance is exactly what it says: for a set term of years, it will pay out a specified sum in the event of your death. The cost of term insurance has fallen dramatically since the late 20th Century, driven in part by improved medicine and increased lifespans. Another crucial factor is the rise of the Internet, which made it possible to compare quotes from hundreds of companies with a few clicks of the mouse. However, price is only part of the picture. Companies vary in their flexibility, policy language and available options, so it's important to review your policy contract closely.
Changing Family Needs
One of the fundamental reasons for owning term life insurance is to protect your loved ones. It's especially important when you're young and your responsibilities outweigh your assets. Term coverage for 10, 20 or 30 years can provide for your spouse or children during that time. If your needs change, because you've had another child or perhaps enrolled an older child in an expensive school, additional amounts can be purchased easily. This coverage can be in the form of separate policies, or "riders," on your main policy. Additional coverage can have a term that's different from your main policy, allowing you to address transient needs or specific obligations.
There are a number of short-term needs that might justify additional coverage. A mortgage or other significant debt is a fine example. Most banks offer life insurance to pay off your mortgage if you die prematurely, but they pay only the outstanding balance. It's usually less costly to cover the debt with term insurance, and have some left over for your beneficiaries. Mortgages are the most obvious example, but it's prudent to cover any large debt with a corresponding increase in coverage. Professionals and the self-employed can also use term coverage to meet their business obligations.
If you're self-employed or in a professional partnership, term life coverage can address some thorny business problems. If your business would be crippled by the loss of you or a crucial employee, the company can buy "key person" term coverage. It provides funds to either hire a person with similar skills, or keep the company afloat until it can be sold. Partnership agreements address a similar need. If your partner dies prematurely, you might not have the funds to buy the other half of the company or practice from her heirs. Term coverage can provide those funds, giving you control of your business and the heirs fair value for their half.
Fred Decker is a trained chef and certified food-safety trainer. Decker wrote for the Saint John, New Brunswick Telegraph-Journal, and has been published in Canada's Hospitality and Foodservice magazine. He's held positions selling computers, insurance and mutual funds, and was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.