Term Life Insurance
Term life insurance provides coverage for a specified term. The “term” is typically 10, 20 years or to age 65 or 75. It pays a lump-sum benefit if the insured person dies within that term. Generally, term life insurance offers the most coverage at the lowest initial premium for a set period of time. Typically term policies are renewable and most can convert to a permanent policy, with coverage for the rest of your life.
The term life policy does not accumulate cash value. Term is generally considered “pure” insurance, where the premium buys protection in the event of death and nothing else. Premiums for term life insurance plans are guaranteed not to increase for the initial 10 or 20 year term of the policy. After this period the policy can be renewed (often, automatically) up to age 80. A new premium is calculated based on age at the renewal time (usually premiums will rise when you renew).
There are three key factors to be considered in term life insurance:
- Face amount (protection or death benefit)
- Premium to be paid (cost to the insured), and
- Length of coverage (term)
Why choose term life insurance?
Term life insurance is the least expensive form of life insurance. Term life insurance is simple to buy and easy to afford. Term life insurance is a good choice as a first life insurance plan. This makes it the ideal way for young families to get the financial security they need. Normally, you can change the amount of your policy, and your premium will change depending upon the new terms and consequently, your monthly payments will be adjusted accordingly.
Life insurance is the only plan that will guarantee a known sum at an unknown time. (Carlos Banhelyi)
If a person dies within the covered period, their beneficiaries receive the amount of the policy tax-free and can use this money any way they want. For example, they can use it to:
- Maintain their lifestyle and pay day-to-day expenses
- Pay for your children’s education
- Pay off loans and debts
- Cover expenses like funeral costs
Once the term life policy expires, you can renew your coverage for another 10- or 20-year term until you are 80 years old, at which point coverage expires.