Term life insurance buys the most death benefit, dollar-for-dollar. It accumulates no cash value, so by itself, it is unsuitable for retirement or legacy planning. It is, however, one of the best vehicles for an individual to provide security to his family in case of an untimely death.

In retirement planning, term life insurance can be integrated with cash-value life insurance, such as indexed universal life (IUL), to minimize the cost of IUL while still providing a needed or desired death benefit. In other words, an IUL policy can be designed to have minimal death benefit (to reduce IUL costs and build cash value more quickly). Then, the owner can purchase a supplementary death benefit with term insurance to provide the needed death benefit as long as it is necessary (e.g., when spouse and children are young). Thus, a well-designed IUL policy often includes supplemental term insurance. (This design benefits the policy owner by maximizing cash-value growth, rather than maximizing commissions for the insurance broker.)

Another approach is to view term life insurance as “starter IUL”. Many term life insurance policies include a conversion option, allowing the owner to convert the policy to permanent insurance at some point. So, convertible term life insurance enables someone to get necessary death benefit protection at the lowest price, and then later, when he can afford it, upgrade to a permanent policy that builds cash value and provides other benefits..