What is Term Life Insurance?

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As the name implies, term life insurance is life insurance that covers a specific term or period. That means you may opt for a policy that covers one, ten, or 20 years, for example. Unless their personal and health circumstances change dramatically, policyholders may usually renew the policy once its original term expires. The coverage amount also varies according to the budget and needs of the insured. As with other life insurance, term insurance pays money to the chosen beneficiary upon the death of the insured.

The main advantage to term life insurance is its relatively low cost. Monthly premiums are more affordable than extensive coverage premiums, although they tend to increase as a person ages or acquires health problems. People just starting out in a career and/ or marriage often opt for a term life insurance policy because it's cheaper. As their incomes increase they tend to upgrade to a plan that offers more benefits. For instance, other life insurance policies offer investment opportunities or the ability to borrow against them. With a term policy, you can generally use it as collateral on a loan, but you can't tap into the equity you've built up.

Term life insurance is known as temporary since it must be renewed at the end of each period. If the insured doesn't die during the term, they get no cash value as all their premiums went toward the policy value. Regardless, it's a good way for someone without much money to make financial arrangements for their survivors. For example, if a man or woman with small children died without insurance, those left behind might have difficulty making ends meet.

One advantage today's insurance shoppers have is the Internet. It's a great resource for learning the terminology and determining just how much and what type of coverage you need. It also provides an easy way to compare rates and check into the reliability of various insurance companies. You can also look online to learn where to find agents and brokers in your area should you choose to purchase a policy in person. And you can find calculators that help you determine the best coverage to ensure that your survivors would maintain a good quality of life if you weren't there.