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Term Life Insurance is a type of insurance that you choose to only insure the risk of dying.  The only value of the insurance is if you die, then the beneficiaries of the policy will receive the face value or the amount of insurance that you’ve bought.

Term insurance is typically the least expensive way of buying insurance.  It is meant to provide insurance against death for a specific period of time.  Today you can buy insurance that is guaranteed not to change for five, ten, fifteen, twenty and even thirty years.  This means that whatever timeframe you choose, the price of the insurance will be guaranteed not to change.

As you might imagine, the longer the guaranteed rate for insurance, the higher the price.  Still, for a relatively young person in good health, thirty-year term is often very affordable.

If you purchase term insurance you will want to make sure that this insurance is guaranteed to allow for conversion to cash value insurance.  This is important because if your insurability (the ability to purchase life insurance) becomes less, you will have an option to convert your policy to last past the term that you purchased.

Below are some reasons that I believe using term insurance is important:

Term insurance is affordable.  Many people believe that having life insurance in place is important.  We often want to make sure that if we die, our family will have at least enough funds to manage the transition without us.  Term insurance is usually affordable for insuring this need.

Term insurance is easy to understand.  Term insurance is very simple to understand.  You pay an annual premium for an amount of insurance.  The insurance company guarantees the rate for a stated number of years.  As long as the premiums are paid on a timely basis, the insurance company will pay a death benefit if you die while the insurance is in force.

Term insurance is appropriate for many families and businesses.  The need for insurance for many families and businesses is often thirty years or less.  Covering the loss of income for this fixed period of time is often an important thing to do.  Past the insurance period that is purchased, there can often be an argument made that insurance is not needed after this point.

My belief is that in most instances term insurance is the appropriate type of life insurance to buy.  It’s affordable, covers specific risks and is easily understood.  If there is a need for permanent insurance or secondary cash value accumulation needs, then there are other types of insurance that are appropriate.

If you want or believe life insurance is important then you should take a look at term insurance as part of your risk management solutions.

Josh Patrick

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Topics: financial planning, wealth management, insurance

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