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A term life insurance policy that is designed to support us in good or bad times
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While investing to grow our wealth is often seen as the more exciting part of financial planning, getting insurance policies to protect ourselves financially against adverse events in life just as death and terminal illness is just as important, if not more so.
After all, it doesn’t matter if we have the potential to be great investors if circumstances deny us time to invest and compound our returns for ourselves and our families in the long term.
Life insurance is an important component of insurance planning that most working adults should have, or at least think about buying. As explained by MoneySense, life insurance helps to provide financial protection for our loved ones when we pass on or become completely and permanently disabled, or are diagnosed with a terminal illness.
Unlike health insurance policies, when we purchase a life insurance policy, it gives our loved ones such as spouses, elderly parents, and young children added financial protection in their lives. This is because if any insured event (e.g. death) occurs to us, the policy will pay out a cash benefit to our surviving loved ones.
Life insurance can be categorized into two main types: whole life insurance policies and term life insurance policies.
| Whole Life Plans | Term Life Plans |
| Provides coverage against events such as Death, Total & Permanent Disability, and Terminal Illness with the options to enhance coverage through riders (ie. Early Critical Illness and so on) | |
| Protects you for your entire lifetime | Protects you up to a specific age or over a specific term period |
| Accumulates cash value over the policy term | Generally have no cash value |
| Provides some cash value when you surrender the policy | Generally do not provide any form of cash value when you surrender the policy |
| Generally more costly as the coverage term is longer plus there are savings and investment features. | Generally more affordable as the coverage term is shorter and does not have a savings element and investment features |
While we can buy a whole life insurance policy to give us life coverage, term life policies can give us an added boost in coverage during stages of life when we are likely to require more coverage.
For example, at age 30, before having any children, the insurance coverage I need may not be that high and a whole life policy could be sufficient. However, at age 35, with three children, the level of insurance coverage that I require would increase significantly.
One of the reasons we purchase a term life insurance policy is to get the protection coverage (or additional protection coverage) that we need to protect ourselves and our loved ones for a specific period. If an unfortunate insured event such as death occurs during that period, our loved ones will receive the additional death benefit payout from our term life policy to tide through the difficult financial period, on top of any payouts that we may also get from our whole life plans.
If no such insured event occurs during the term coverage period, we are (thankfully) still around. That, by itself, is a huge win that we should be happy about.
Some of us may not like the idea of buying term life insurance because the policy will only pay out when devasting events such as death or terminal illness occur. We may prefer to have a more optimistic view in life that nothing wrong will happen to us during the prime of our lives and to save money on insurance policies.
However, a different way of thinking about this is that by not buying a term life insurance policy or any other life insurance, we are taking a bigger risk. We are hoping that nothing will happen to us, but if death does occur to the breadwinner, not only would the family lose a treasured loved one, but neither will they have the financial support they need to continue living life the same way.
While insurance cannot replace a loved one, it can provide the family with the financial support they would need to weather through this difficult period and give them the time they need to get back on their feet. And this is what a term life policy aims to do.
