Term Insurance - Pitfalls to look out for

Shopping for Life Insurance is like shopping for a new pair of shoes. They have to match your outfit and suit your everyday life. You might need shoes for exercising, for business, or for a night on the town. But whatever shoes you choose they have to serve the intended purpose, they have to fit comfortably and they have to be within your budget.

Life Insurance has more long term implications than shoe shopping but the decision making process is based on the same principals. Your needs and objectives are individual to you - the plan you choose can not be a one size fits all solution.

Life Insurance shopping like shoe shopping requires some research if you want to get the right fit. The plan you choose has to fit your budget - which is why prudent purchasers in the market for insurance shop for the lowest rates and the best value. What most consumers for life insurance don't realize is the plan with the cheapest rate is not always the best value.

It's important to realize there are two different types of Insurance plans, Term Insurance and Permanent Insurance. Term Insurance has a lower initial cost; however the premiums are only level for a stated term - usually 10 or 20 years - and the cost increases dramatically after the term ends. If you don't renew your coverage ends and your premiums are gone. By contrast the initial premiums for a Permanent Insurance are higher than Term Insurance but your cost remains level. You also have coverage for your lifetime and depending on the plan it may generate a cash value. It's crucial if you do choose a term plan that the coverage is convertible to a permanent plan without a medical but even than your premiums are based on your age at the time of conversion.

Ask yourself would you by a cheap pair of shoes that didn't fit just because they were on sale? The answer is undoubtedly "No". You wouldn't get enough use out of them to justify the cost. Term Insurance can be a good fit in some instances but too many times it's sold simply because it's a cheap and easy sell.

One last point when shopping for you're your life insurance be sure to work with an independent broker who offers a full section of companies and products. To go back to the shoe analogy one more time - you want a store lined with a wide variety of brand names, styles and sizes. Don't let your local "captive" agent put you in a size 8 term policy- take the time to work with an independent broker who can create a custom fit.

Lorne S. Marr has been a very accomplished financial planner since 1993 and runs his own Toronto life insurance company LSM Insurance Services Ltd. He's recognized as an industry leader thanks to the commitment to providing clients with value-added services. Find out more about permanent life insurance on his website www.lsminsurance.ca.