If you have just been introduced to a Term policy product and you are wondering if it is really suitable for your needs, I hope that I can help clarify your doubts here.
Term Insurance policies as its name suggests, are meant to last only for a specified term of period of time. Thus the sum of money insured will only be claimable in the event of death during the period of coverage. If the insured is alive past the policy term, nothing will be paid and the policy expires. Thus you can look at it as a cost that is spent. This is very different from the other health insurance policies like Whole Life or Endowment, where the policies accumulate cash values that will be paid out at the end of the policy.
So the obvious question is, why should I buy a Term Insurance over Whole Life or Endowment policies then??
Simple answer: Cost.
Nothing comes free and in order to accumulate cash values in the Whole Life or Endowment policies, you will need to pay for it. And it is generally several times more expensive than a Term policy for the same coverage.
So who should purchase a Term Insurance policy? Term Insurance is perfect for anyone who’s needs align with ALL the following 3 points.
1.Your main objective is payout for your loved ones against the possibility of your death. You just want the most cost effective method to ensure that your beneficiaries are provided for in the event of your untimely demise.
2.You only need death coverage for a limited period of time. Of course the ideal case is death coverage until you actually die, but that would mean paying more for it. Besides, when your beneficiaries like your kids become independent and self-earning, there is a much reduced need to ensure that they are provided for since they are able to support themselves.
3.You are not looking to accumulate savings. As explained earlier, Term Insurance should be looked upon purely as a cost and never as an investment. You are paying for coverage over your life for a fixed period of time. When that time is up, it is sunk cost and nothing comes back.
If you find your needs not quite aligning with any of the above 3 points, then perhaps, you should consider either the Whole Life or the Endowment policies since they are most likely able to satisfy the areas of your needs that Term Insurance was not quite able to meet. But if your needs match exactly the above 3 points, then Term Insurance is probably the way to go. You can read about what to look out for in a Term Insurance here.