Term life insurance is the most basic and inexpensive form of life insurance. It is pure life coverage, without the bells and whistles. Term life provides protection for a specified period of time or 'term'. It pays a benefit to your beneficiary(s) if you should die during the term period, which is usually 10, 15, 20, 25 or 30 years.
A simple way to define term life insurance is to look at what it is and what it is not.
Term Life Insurance Is:
Inexpensive. It provides the best value in life insurance. You can purchase the greatest amount of coverage for the lowest premium compared to all other forms of life insurance.
Temporary. It is intended to last a certain period of time or term. Typical term periods are 10, 15, 20, 25 and 30 years. However, you can purchase one-year term policies as well.
Renewable. You can renew your term life policy at the end of its term. However, the premium rates will generally be much higher than the guaranteed rate you were paying during the term period. Most people take out a new term life policy at that point, if they find they still need the coverage and they are still insurable.
Convertible. You can convert your term life policy to a permanent policy, such as universal life, within a certain period of time. You can do this without proving your insurability again. Of course, the premiums will be higher but will then have permanent life insurance coverage.
Expandable. You can add additional coverage in the form of riders. Some are automatically included at no cost, such as accelerated death benefit riders. Others have an additional cost and can pay benefits for long term care, the death of a child, accidental death, disability premium waiver and more.
Flexible. You can use a term life insurance policy to protect your family, replace your income, pay estate taxes and secure a bank loan among other things. Business owners or partners can insure key employees, use as collateral for loans, fund Buy-Sell agreements and more.
Simple. There are no bells and whistles. No guaranteed interest rates, loan provisions, extra fees, etc. It's pure and simple life insurance protection.
Term life Insurance Is Not:
Permanent. The term will someday expire. Of course, this is a good thing because it means you will have outlived your policy! However, you may find you still need coverage. This means you will have to renew the policy, convert it to permanent (if eligible) or purchase a new term life policy. And you will pay more as you will be older by that point.
Savings. Term life policies are not savings or investment vehicles. Most permanent life insurance policies build cash values which you can later use in the form of loans for things like college tuition or retirement. These cash values accumulate on a tax-deferred basis, and can be tied to investment returns, guaranteed interest rates or both.
As you can see, term life insurance is good source of protection for most people and for many different situations. From young families to single parents to business owners, the low cost and simple protection offered by term life insurance is often the best choice.
Learn more about life insurance in this informative brochure from the non-profit LIFE Foundation.
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