Term Life Insurance

Definition of Term Life

Term Life insurance is one of the most commonly used policies in the insurance industry today. Term insurance can help protect your beneficiaries against financial losses resulting from your death.

It is considered to be pure insurance protection and pays the entire face value of the policy to your named beneficiary if you were to die during a specified period of time.

Unlike permanent life insurance policies which have a savings component that can be used for tax sheltered investments and wealth accumulation, there is no provision for any returns beyond the stated benefit. All premiums paid into the policy go directly toward covering the cost of insurance protection.

The term period may be 5, 10, 20, but usually not longer than 30 years, and so contrasts with permanent life insurance, in which the duration extends until you reach 100 years of age (i.e. death).

Unless renewed, the insurance coverage ends when the term of the policy expires. It is up to you as the policy owner, to decide whether to renew the term life insurance policy or to let the coverage end.

Since this is temporary insurance coverage it is also the least expensive to acquire. Term policies are useful when protection is only required for a specific period of time or when the dollars available for coverage are limited.

The premiums for these types of policies are significantly lower than the costs for permanent life insurance. They also (initially) provide more insurance protection per dollar spent than any type of permanent policy.

A healthy 35 year old (non-smoker) can typically obtain a 20-year level-premium policy with a $250,000 face value, for between $20 – $30 per month. Below are the main characteristics of term life insurance:

  • Low cost.
  • No cash value.
  • Usually renewable.
  • Temporary insurance protection.
  • May be converted to permanent life insurance.

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