What Is Term Life Insurance?
(2 of 7)
What Is Term Life Insurance?
The primary purpose of life insurance is to provide financial support to your beneficiaries in the event of your death. Every type of life insurance policy has a regular cost (called a premium) based on your life expectancy and the type and amount of your insurance coverage.
Things To Know
- Term life insurance provides coverage at a fixed rate of payments for a limited period.
- Premiums increase as you age due to the risk of your death increasing.
Term life insurance is a life insurance policy that provides coverage at a fixed rate of payments for a limited period, called the term. Term is the original form of life insurance. As insurance, it satisfies claims against what is insured, similar to how auto or health insurance works, as long as premiums are being paid for the period of coverage. If an event (i.e., your death) occurs, a benefit is paid out. If no event occurs, no benefit is paid out. Term life insurance is therefore a pure death benefit.
What they cost
Term life premiums are usually very inexpensive when a person is young and healthy. They increase as you age due to the risk of your death increasing, and many of them expire without paying out, while whole life policies MUST pay out, per the contract, because they have an investment component that builds up cash for you. But as the years go on, term life premiums may total more than the death benefit of the policy.
Term insurance considers the following factors:
- Length of coverage (term)
- Face amount (death benefit)
- Premium
Insurance companies use different combinations of these factors when constructing their policies. And the factors themselves can change. For example, the face amount can stay the same over the life of the policy, or it can decline.