Because term life insurance provides life
insurance coverage for a specific time period (term), it is
often referred to as temporary insurance or pure insurance.
The face amount of the policy is paid if you die during the
term of the policy. When you live longer than the term of
the insurance coverage, nothing is paid.
Who should buy term life insurance?
People with high insurance
need, low cash flow
Term insurance is appropriate for situations when there is a
high need for insurance but not much cash flow to pay for
it. For example, a young family with limited cash resources
may have a great need for survivor income to provide for
living expenses and education needs. Term insurance is
especially helpful here, allowing the family to buy
insurance protection with minimal cash outlay.
People with short-term coverage needs
Term insurance is well suited to cover short-term needs,
such as coverage during your working years, the college
years, or for the duration of a loan or mortgage. Generally,
a short-term need is considered to last ten years or less,
and may include coverage for nonrecurring business debt
security, key person coverage in a start-up business, or the
young family just starting out.
Advantages of term life insurance
Low cost for large death
benefit
Term insurance is generally the most efficient way to
achieve maximum life insurance protection for a minimum
current cash outlay. When you are young and just beginning
your career or family, you may have a need for insurance but
not much cash to pay for it. With a term policy, you can
usually buy a larger death benefit for less cash than you
could get with any other type of life insurance policy. At
least this is true while you are still relatively young and
healthy.
Various time frames and features
Term life insurance is pretty flexible. You can buy term
insurance coverage for the time period that best suits your
needs. Generally, you can increase your coverage if your
needs change and renew your policy for an additional period.
Increases in coverage may require new proof of insurability.
Disadvantages of term life insurance
Premiums increase at each
renewal and get more expensive with age
A term policy has an endpoint, like an expiration date. When
the coverage period ends, you may have the option to renew
the policy, depending on the specific policy and with its
stated limitations. Each time you renew the policy for an
additional term of coverage, the rate increases because your
age (and consequently the insurance company's risk of paying
the death benefit) has increased. Eventually, you could be
paying more in premiums for term coverage than if you had
bought a whole life policy from the beginning. The
increasing premium costs can make term insurance very
expensive for long-term needs.
Termination at a certain age may be
automatic
Some term policies automatically terminate at a certain age,
often 65 or 70, and most people will outlive the term of the
insurance. Term policies pay a benefit only when you die
during the coverage period. When you live longer than the
term of the insurance, your beneficiary receives nothing.
There are policies available that are renewable until age 90
or 95, however. If you want a policy which provides coverage
for your entire life or allows you to get cash out of the
policy at some point, consider one of the permanent, cash
value policies such as whole life, variable life, universal
life, or variable universal life.
Learn More...
Life
Insurance Overview | Understanding
The Basics | Term
& Cash Value
Coverage Amounts
| Reading Policies | Planning
Concerns | Life
Calculator | Life Glossary
Please Note: The
information contained in this Web site is provided solely as a source of
general information and resource. It is a not a statement of
contract and coverage may not apply in all areas or circumstances. For a complete
description of coverages, always read the insurance policy, including
all endorsements.
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