Term Life Insurance is the generally considered the original, most simple and most affordable form of life insurance. As the name implies, Term Life Insurance is designed to insure for a specific term, usually 10, 15, 20 or 30 years, and provide affordable protection at a scheduled premium level. Term Life Insurance is often considered to be the least expensive way to purchase a substantial death benefit, based on a coverage amount per premium dollar basis. Additionally, Term Life Insurance is the most popular type of life insurance available today.
Generally, a person will choose a coverage level, a term and name a beneficiary as the person they want to receive the death benefit. If the insured dies while the Term Life Insurance policy is in force, the death benefit is paid to the designated beneficiary. After the term expires, coverage at the previous rate of premiums is no longer guaranteed and the insured must either forgo coverage or obtain further coverage with potentially different conditions and often much higher premium amounts. Most Term Life Insurance programs include a renewal option that allows the insured to renew for a maximum guaranteed rate if the insured period needs to be extended. It is important to note that the renewal may or may not be guaranteed and the insured should review their contract to see if evidence of insurability is required to renew the policy. In some cases, the insured may be able to convert the Term Life Insurance into a permanent life insurance policy, often called whole life insurance, which builds cash value and may earn dividends.
The costs and premium amounts of Term Life insurance can vary greatly when compared to permanent insurance, even though both Term Life Insurance and permanent insurance use exactly the same mortality tables for calculating the cost of insurance. The reason the costs are substantially different is that Term Life Insurance programs may expire without paying out, while permanent programs must always pay out eventually. To address this, permanent programs have built in cash accumulation vehicles, making the permanent programs much more expensive.
Term Life Insurance can help you meet a number of personal and/or business needs and is often considered a good choice:
- When life insurance is essential but dollars are scarce
- For a well-defined period of time
- To protect your family (insurance benefits can help pay a mortgage or fund a child’s education)
- To protect your business (benefits can ensure business continuation by helping to cover business expenses)