Although the sales of term life insurance are up just 1% over the past two years ending in 2012, it is one of the most popular insurance products sold by independent financial advisors, according to Windsor, Conn.-based Limra.

“Term insurance is ideal for cost efficiency, for a short- to-mid-term coverage period, and is especially suited for healthy individuals,” says Rich Arzaga, a San Ramon, Calif.-based CFP. “Ideal candidates are younger and middle-age clients who need to replace their income if they should die prematurely. Term insurance is also good as a way to pay off debt or fund education if a breadwinner should die, or provide coverage for a short term.”

Term insurance is cheaper than permanent insurance because the policyholder just pays for death benefit coverage for a specific period, generally ranging from one year to 30 years. With permanent insurance, premiums pay for the death benefit and build up a savings account or “cash value.”

Cost savings realized on term insurance can be used to fund other financial planning needs.

Statistics suggest that many are buying term insurance partly because of financial advisor recommendations. Four out of five advisors sell term insurance, according to Tiburon Strategic Advisors in Tiburon, Calif. Tiburon’s research shows that the opportunity to use life insurance as part of a financial plan is growing. Reasons: The number of insured households is expected to grow dramatically, and households are expected to buy an additional $78 billion in life insurance over the next four years.

Limra research also suggests that term insurance may be a good alternative to high cost coverage. For example, three of 10 people are uninsured. And the average U.S. household only has enough life insurance to cover 3.5 years of income, primarily because they are relying on employer group coverage.

A 45-year-old male would pay about $1.20 per $1,000 for 20-year term insurance. By contrast, a permanent life insurance policy would cost about $15 per $1,000 of coverage, according to AccuQuote, a Wheeling, Ill., insurance brokerage.

Term insurance rates are half as expensive as they were 20 years ago and 10% less than they were 10 years ago because of longer life expectancies, medical advancements and improved underwriting standards. Online access to cheap term insurance is also keeping prices at bay, says Steven Weisbart, chief economist with the Insurance Information Institute, New York.

Depending on the insurance company, most term policies can be converted to whole life insurance before the policy term expires. Some policies also come with a return of premium rider, which boosts premiums by about 30%. Policy riders also include accelerated death benefits, which allow a terminally ill person to collect a significant portion of the policy’s death benefit while he or she is still alive. Other policy riders include disability waivers of premium, which waives premiums when a policy owner suffers a long-term disability. There can also be accidental death benefits, which double or triple the benefit in deaths by accidental means.

“What type of insurance is needed all depends on what the person is trying to accomplish,” says Peter Bono, a Palm Beach, Fla.-based CLU. “You have to ask them.”

There is no free lunch with term insurance. Policyholders pay higher premiums when they renew expired term insurance because they are older. They also may be required to take a medical exam. If their health has deteriorated, they may pay even higher premiums. Term policyholders often can convert their term insurance to whole life, but the higher premiums may be prohibitive. And if a policyholder has a rider that waives the premium in the event of disability, some insurers may decline this benefit if the policyholder becomes disabled during the conversion.

On the other hand, converting a term policy—to whole life, for example—may be the only option for a policyholder in poor health because no medical underwriting is required.

Bono says his clients with younger children get 15-to-20-year term insurance to cover mortgages. He also uses term insurance for business buy-and-sell agreements. One business partner is the beneficiary of the term life insurance policy if the other partner dies. The proceeds are used to buy the deceased partner’s stock in the company. In 2009, two male business partners aged 41 and 51 bought $600,000 in level term coverage on each other for 15 years. Their plan was to sell the company in 10 years. The 41-year-old was issued preferred-plus non-tobacco policy with an annual premium of $381. The 51-year-old was issued a standard non-tobacco policy with an annual premium of $2,007.

Arzaga stresses that healthy applicants for life insurance can often get a better rating with permanent insurance, such as whole life or universal life insurance. Because they pay higher premiums, there is less risk to the insurance company. That can make permanent insurance a better value for the cost.

Term insurance is not for everyone. Insurance agent Bono says he recently got a call from a 57-year-old woman wanting to buy 20-year term insurance so she could leave money to her children. He put her in a whole life policy, because if she lived past 77 she would be without term insurance coverage.

“She didn’t realize that term policy is done after 20 years,” he says. “She would have to convert the policy to whole life by age 65 and it would be too costly.”

Arzaga stresses permanent life insurance is best when the need for a death benefit is to solve a long-term strategy, like estate planning wealth replacement. “Whole life and guaranteed universal life insurance are better policies to use to provide the liquidity needed to solve estate planning issues, like paying estate taxes, protecting hard assets from forced liquidation and equalizing an estate among the surviving children,” he says.

He also favors permanent life insurance coverage for retirement income or as income for beneficiaries. Whole or universal life is also better for someone who wants to add disability or long-term care riders to his life insurance policy.

Diana Kahn, a Fort Lauderdale, Fla.-based CFP licensee, often favors low-cost term insurance for middle- and middle-upper-income clients. This lets her work with clients to strengthen their balance sheets and savings. She often tells clients with simple insurance needs to buy insurance online.

Others she refers to an experienced insurance agent. “I recommend 30-year term insurance for young parents to carry the children through college and until they obtain a job,” she says.

Kahn might consider advising clients to buy term insurance and invest the difference in premiums between term and permanent life insurance. But the client must be the type that has the discipline to invest regularly for life.

There are other low-cost options. Bono says he uses a program similar to term insurance for wealthy Palm Beachers, who often put life insurance in a trust for estate tax purposes. The product, called “Guaranteed Death Benefit Universal Life,” minimizes premiums because it has no cash value or savings account. He sets it up so policyholders pay a single premium or level payments for life for pure insurance protection.

“The trust owns the policy to keep it out of the estate,” Bono says. “You want to pay as small a premium as possible. So you set up a minimum premium that will guarantee coverage for life.”

Meanwhile, Christine Costello, a CLU in Bethesda, Md., says she often combines term insurance with whole life insurance to lower the cost of coverage. The cost savings can be used to fund disability and long-term care coverage based on her insurance needs analysis.

There are also reasons why both younger and single clients might need coverage, stresses Byron Udell, CEO of insurance brokerage As they age, health problems could prevent them from qualifying for insurance. Meanwhile, life insurance costs less monthly for a younger person. Because of their longer life expectancies, younger people can lock into lower life insurance premiums.

Say a parent, friend or relative has co-signed a loan for a young adult, for example. Udell notes that term insurance could help insure coverage of the debt. A 20-year level term insurance policy for a 30-year-old costs about 50 cents per $1,000 of coverage. By contrast, a 30-year-old single person, expecting to marry someday, could pay about $10 per $1,000 of permanent whole life insurance coverage.

It also could make sense for a single parent to get coverage to provide for a child after the parent is no longer around. A single parent making $80,000 annually may need $400,000 to $640,000 of life insurance.

Prior to the 2008 economic meltdown, courts required one of the parties in divorce settlements to purchase term insurance to provide protection for the other spouse and children. Kahn says, however, that today judges are not recommending term coverage because most people have serious financial problems. If term insurance is required as part of a settlement, the spouse buying the coverage can simply change the beneficiary.

“Courts and judges know that people are going through tough times in this economy,” Kahn says. “Insurance is a very expensive tool.”