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Term life insurance provides life insurance for a specific period of time, or “term”. Term life insurance provides only insurance protection and does not have a savings feature found in permanent life insurance policies.
Term life insurance provides coverage for a limited period of time. This type of insurance offers the users a choice of terms from 1 year renewable up to 30 year terms. The renewable options are usually only available for the shorter terms, 1 to 5 years. The premium remains the same throughout the term, the most popular is the 20 year term. In certain cases the insured can also opt for a term to a specified age, usually 65.
After that period, the insured can either drop the policy or pay annually increasing premiums to continue the coverage. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is often the most inexpensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis.
Term life insurance is most useful when an insured person is relatively young and the need is for temporary or short-term coverage. Young, growing families with limited income and a high insurance need represent one situation where term life insurance works very well. Situations where a need will decline over time, such as with a home mortgage, are also good candidates for term life insurance.
The younger the insured is when he or she takes out a term policy, the cheaper the premiums. Because the premiums will not increase over the term, the longer the term the more money saved. Thus a young person can have a very high insurance death benefit for a relatively small premium up to the age of 65.
Another benefit may be “Return of Premium” as some insurers have created term life with a “return of premium” feature. The premiums for the insurance with this feature are often significantly higher than for policies without it, and they generally require that the policy remain in force to its term or else the insured forfeits the return of premium benefit.
Some of the advantages to buying term life insurance are whole life insurance is expensive, due mainly to its investment aspect, while term life insurance is very affordable. Whole life insurance policies often cost thousands of dollars a year, as opposed to the mere hundreds of dollars a year that the majority of term life insurance policies cost consumers.
Term life insurance is simple to understand, and allows for personal choice. The insured has to pay a (low) monthly premium based on the term length and amount of coverage chosen.
Term life insurance is good for short term needs. Two good examples of this are to cover one's children's college education and to cover mortgage. Parents could buy a policy that expires after their children graduate from college to ensure that the full education is paid for (in case anything happened to the parents). Or, the main breadwinner in a house could buy a term policy that matches the length of his or her home's mortgage.
This article was contributed by Prerna Mordani.
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