WHAT IS TERM LIFE INSURANCE?
Term insurance is a type of life insurance policy that provides coverage for a certain period of time or a specified "term" of years. If the insured dies during the time period specified in the policy and the policy is active, or in force, a death benefit will be paid.
Term insurance is initially much less expensive when compared to permanent life insurance. Unlike most types of permanent insurance, term insurance has no cash value. In other words, the only value is the guaranteed death benefit from the policy.
UNDERSTANDING TERM LIFE INSURANCE
There are various types of term life insurance policies available. Many policies offer level premiums for the duration of the policy, such as ten, 20, or 30 years. These are often referred to as "level term" policies. A premium is a specific cost, which is typically monthly, that insurance companies charge policyholders to provide the benefits that come with the insurance policy.
The insurance company calculates the premiums based on the individual's health, age, and life expectancy. A medical exam that reviews the person's health and family medical history might be required depending on the policy chosen.
The premiums are fixed and paid for the length of the term. If the policyholder dies prior to the expiration of the policy, the insurance company will pay out the face value of the policy. If the term expires and the individual dies afterward, there would be no coverage or payout. However, policyholders can extend or renew the insurance, but the new monthly premium will be based on the person's age and health at the time of the renewal. As a result, the premiums could be higher for the renewed policy versus the original term policy that was initiated when the individual was younger.
Term life insurance is a type of life insurance policy that provides coverage for a certain period of time or a specified "term" of years.
If the insured dies during the time period specified in a term life insurance policy and the policy is active, a death benefit will be paid. Many term policies offer level premiums for the duration of the policy.
There are various types of term life insurance besides the level term policies we've outlined. Each policy has its pros and cons, depending on the needs of the policyholder.
Other term life insurance policies offer decreasing or increasing benefits over time as well as the option to convert from term to permanent insurance.