From Insurance Lounge

A Temporary Need for Protection
Term insurance is often used as protection when a loan is taken. A term policy in the amount of the loan could assure that the debt is repaid, in the event the insured dies. A business owner who borrows money to enlarge his or her operation could purchase a term policy in the amount of that loan. Often, homeowners choose term insurance to protect their mortgage over the life of the loan, or parents who are funding a child’s college education could use term as a hedge until that child graduates. Whenever life insurance is needed for a relatively short period.

Limited Funds for Permanent Life Insurance
In situations where life insurance is essential but dollars are scarce, term could serve as a stop-gap. Individuals fresh out of college and starting a career may want to consider term coverage. If they’re like many recent graduates, they probably have student loans that need to be repaid. If they should die before the loans are repaid, that obligation could fall to their estate and their family. Term insurance could safeguard against that, and when they’ve achieved some level of success and have sufficient funds, they can convert the term policy into a permanent policy.

A Supplement to Permanent Life Insurance
An excellent use of term insurance is as an added “rider” to a permanent plan. Let’s say an individual requires $200,000 in life insurance coverage, but can’t afford the premium for a 100% permanent plan. An affordable option may be to purchase a $50,000 permanent policy with a $150,000 term rider. That mixture would provide the desired amount of coverage with limited cash value accumulation, at a premium that fits within a given budget. In the future, when income increases, the term portion can be converted into permanent insurance.

The Conversion Privilege
Unlike permanent insurance, term does not accumulate cash value, and in most instances does not earn dividends. That is why one of the most valuable benefits of a term policy is the conversion privilege. Many term policies offer the ability to convert term coverage into permanent insurance without submitting proof of good health. This privilege is usually available during the first several years of the policy. If permanent insurance is not within your budget at the present time, the conversion privilege guarantees your insurability at a later date – even if you become uninsurable. Most companies offer different possibilities for conversions, so be sure to.