What is Term Life Insurance (Insurance Navigator)?

As the name indicates, term life insurance is life insurance coverage that lasts for a limited amount of time, or term. It is used to provide financial protection for specific events. For instance, a couple might take out a term insurance policy equal to the value of their home, so that if either one of them dies before the mortgage is paid, the insurance money will cover the remaining balance and provide the surviving spouse with a small nest egg. 

Term life insurance has no cash value, as whole life policies do. It is considered pure life insurance. Simply put, it pays if the policy holder dies during the term. Otherwise, it offers no other benefit except peace of mind.

What are the premiums?

Unlike whole life insurance, term life premiums are low. They are usually paid annually, more of a renewal than an actual premium, depending on the policy.

When does term life insurance pay?

If the policy holder dies while the policy is in effect, during the designated term, the policy will pay the full benefit to the beneficiary.

Why should someone consider this type of life insurance?

With its limitations, you might wonder why someone would purchase insurance they may never benefit from. However, it does have a few features that make term life insurance a reasonable choice in certain situations.

• It is affordable.

Cost is often a major factor when choosing any type of insurance, and no less so for life insurance. Term life insurance is inexpensive, making it an attractive option for someone on a limited budget.

• It may offer adjustable premiums.

Adjustable premiums mean that the insurance company may raise or lower premiums depending on some projected change. For instance, if a term policy is purchased to cover a mortgage, and the mortgage is close to being paid off, the premium may be adjusted down because the amount of needed coverage is lower than it was initially.

• Easy to renew.

Some insurance companies offer easily renewable term life insurance policies. If a policy holder decides to extend the term of the policy, it is a no-hassle process. However, this will vary from insurer to insurer, and may be limited.

• May be converted to whole life insurance.

Though this varies from one insurer to another, some term policies may be able to be converted to whole life policies when the policy holder reaches a certain age. This is allowed often because the risk for the insurance company is the same regardless of the type of coverage the person carries.

Term life insurance is not for everyone. It is limited, so it is best to speak to an agent to better understand whether such a policy meets your needs. However, if you do purchase a term policy, you will have affordable premiums and solid coverage during the term. The coverage can offer greater peace of mind to the policy holder and their family.