Term life insurance provides coverage for a specific period or term (most often 1, 5, 10, 15 or 20 years). It is also called temporary insurance. If death occurs during the term, the policy pays cash benefits to the beneficiary. However, once the term is over, and if the policy is not renewed, the coverage ceases. If death occurs after that period, no cash benefits are paid out.
Term insurance is easiest to understand and the most straightforward type of life insurance. Sometimes it is called “pure” insurance, since the policy has no financial investment value and most of your premium goes to pay for coverage, with only a small amount used to pay the insurance company’s costs. If you are looking for the maximum amount of coverage, term life insurance is best option for you.
All term life insurance policies cover you for a specific amount of time. The term that’s right for you depends on how old your children are, how many years before you retire, and many other factors. Many people like to know they are insured until they are ready to retire. Many just want to have insurance until their youngest child graduates from college, and so they make sure their life insurance coverage includes money to pay for all of the college tuition.
Most experts agree that you should carry insurance at least until your youngest child is 18. So if your child is 3 now, you would want to carry your insurance for at least 15 years. But that doesn’t mean you have to lock into a 15-year term. You could instead buy an annual renewable policy and renew it for 14 years in a row. You should compare the total cost of the annual renewable policy and the 15-year term policy, making adjustments for the time and value of money, to determine what the best value is for you.
Advantages Of Term Life Insurance:
- It pays a death benefit to the beneficiary you name.
- It will cover your final expenses and provide a lump sum for your dependents.
- It covers you for the full amount of life insurance you choose.
- It can be convertible and renewable depending on the policy.
- It gradually increases annual premium as you get older.
- It traditionally works well to meet temporary insurance needs.
Disadvantages of Term Life Insurance:
- It doesn’t provide a cash value account for some later point such as retirement.
- It doesn’t provide you permanent life insurance protection.