Term insurance meets practical goals

As a young mother I am looking to ensure my daughter is financially protected in the event of any unforeseen event.

While considering my savings and investment options, I came across the concept 'term life insurance'. What are the benefits of this cover and how does it differ from whole life insurance?

It is good to know you are evaluating several options while planning ahead for your daughter's financial security.

'Shopping around' helps you make a more informed decision - to help you understand the intricacies and clauses in the cover you are choosing. It is advisable to speak with an independent financial advisor who can talk you through a lot of the 'technical jargon' that often confuses buyers. An expert can also help you evaluate the ROI (return on investment) you hope to achieve against your expectations and lifestyle aspirations in the future.

The 'term' life insurance explains the primary concept behind this cover - the policy is valid for the duration of the specified 'term' you decide on. This could range from a 5-year term, or a 10, 15, 20 or 25-year period.

In a term life insurance contract, the beneficiary receives a specified amount of benefit support for a specific time period - however the key differentiator with a term life insurance policy compared to whole life insurance, universal life insurance and variable life insurance policies is that there is no cash accrual or investment component.

There are several reasons why people opt to buy term life insurance covers - you need to ask yourself what is it exactly that you hope to cover your daughter for. Some of the information you need to list out includes whether the amount that would need to be replaced represents a portion or all of your income for a fixed period of time.

With whole life insurance, people look to accrue a guaranteed amount of capital to provide emergency funds in case the sole provider unexpectedly dies, provide college funding for their children, cover any other outstanding liabilities or debts, or create a cash bequest for their dependents.

Secondly, how long do you anticipate that your child will need financial support? Aside from the immediate cash requirements that arise, there are travel and medical expenses and educational and college bills that require financial cover.

It is important not to forget the outstanding payments on debts or mortgages when calculating the amount you are looking to cover your daughter for.

With term life insurance the primary difference in payment options is you pay the lowest possible sum from your income to maintain life insurance coverage.

Term life cover helps you achieve specific goals; you can buy the entire amount of coverage you need to meet the most practical security goals your family needs.

Additionally, death support benefits and premiums are assured for the entire duration for which you believe your dependents will need pro tection.

Usually, people who are starting to create their financial plans find the terms and policies of term life insurance simpler to comprehend. This can be a good start to your long term financial planning as after the end of the initial guaranteed period most policies offer the option of converting the policy to a whole life type product from the same insurance provider.

You are indeed making a good start; parents look to offer their child the best and planning ahead is crucial to their future security. Speak to an independent financial advisor before purchasing a policy - they will assist you in tailoring a scheme to meet your expectations in line with your financial obligations.

- The writer is the sales and marketing director at Nexus, one of the region's leading financial advisors. The opinions expressed here are the writer's and do not necessarily reflect the views of Gulf News. For queries, please email advice@gulfnews.com. You can also visit www.nexusadvice.com.