Term life insurance is a type of insurance policy that provides financial coverage in the event of death. Like other types of insurance, the insured pays a monthly premium in order to keep coverage active. Premiums for term life insurance are typically fixed for a set period of time. After that period expires, coverage also expires unless the policy is renewed or converted, and premiums may increase when changes are made.
The cost of term life insurance varies depending on the insured’s age, health, coverage levels and term length. Seniors e in poor health who desire high levels of coverage for long periods of time pay the highest premiums while younger people in good health who desire short periods of low coverage pay less. Typically, term life insurance is purchased to cover a specific financial hardship that would result from the insured’s untimely death. Term life insurance is often thought of as risk protection. The greater the risk of death during the coverage period, the higher the cost of the insurance.
Term life insurance is purely a death benefit, so beneficiaries are not limited in how they can use the benefits. Financial responsibilities such as consumer debt, dependent care, education expenses, funeral costs and mortgage balances could all be paid using the benefits from a term life insurance plan.
Since term life insurance has an expiration date, it is considered a temporary protection from risk rather than an asset. Term life insurance is often popular for its low cost and high amounts of available coverage.
Since term life insurance has a set period of coverage, it is important to consider what will happen to the policy once the term ends. Some policies have a clause for conversions, so the insured may convert their term life policy into a whole life policy at a reduced cost. Others allow the insured to renew for another set term at a pre-determined rate increase, assuming there have been no major changes to health.
Term life insurance plans may also have exclusions that should be considered. Sometimes certain manners of death are not covered by the policies. All factors should be taken into consideration before purchasing a term life policy over a whole life policy.
In general, term life insurance is a good choice for those looking for pure risk protection. If the individual is young and reasonably healthy, a term life insurance policy with an option for conversion may be a good choice.