Insurance is designed to protect your assets if a covered event occurs. Auto insurance protects you if you're involved with a car wreck, homeowners insurance protects you if your house catches fire, health insurance protects you if you get sick and, ironically, life insurance protects your family if you die. How much and what kind of life insurance you need depends on your situation. In some cases a 10-year term insurance policy is your best bet.
Term Life Insurance
Unlike whole life insurance, which includes both an insurance component and an investment component, term life insurance is pure insurance. Also unlike whole life insurance, which is designed to cover you for your whole life, term insurance only covers you for a specific term -- for example, 10 years, at which time the policy expires. Term life typically is considerably less expensive than whole life insurance and is appropriate when you need a large amount of coverage for a set period of time for the least amount of money.
There may be times in your life when you have greater financial responsibilities than others. For example, you might have children who are getting ready to go to college. Buying a 10-year term life insurance policy can provide peace of mind that those college bills will be covered in the event of your death. Since a 10-year policy represents less risk to the insurer than a longer-term policy, you can typically buy a higher level of term insurance for less money than permanent insurance or a longer-term policy. Once the kids are out of school and you no longer need that level of coverage, you can allow the policy to lapse without a penalty.
Key Man Coverage
Your business might rely heavily on the expertise of one or more key individuals. If that person suffered a fatal injury or illness, the loss of that individual could be devastating to your business. A 10-year term life insurance policy, sometimes referred to as key man insurance, can provide the additional funds your company needs to weather the challenges involved with replacing that individual.
As you near retirement age, chances are you are in your highest earning years. If you die before you retire, it could cause significant financial stress on your family. You might not need long-term insurance, but a 10-year term life policy could be sufficient to bridge the financial gap. You typically have the option of a level-term provision, which keeps your premiums the same for the entire 10-year period, and you might also have the option of renewing your policy at the end of the term at the new rate, or of converting the policy to a whole life policy.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.