A Little Bit About Term Insurance (part one)

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What Is Term Life Insurance?

Term life insurance, also known as pure life insurance, is a type of life insurance that stays in force at a level price for a specific amount of time. During the term of the policy (popular terms are 10, 20, and 30 years), if the insured passes away, the life insurance company will pay the full amount of the policy death benefit. Once the term ends, depending on the policy, the policyholder can purchase another term policy (if they are still insurable), convert it to an annual renewable term policy that increases in price every year, or allow it to terminate.

Some Important Things About Term Life Insurance

  • Term life insurance guarantees payment of a stated death benefit to the insured’s beneficiaries if the insured person dies during a specified term.
  • Term life insurance is generally much cheaper than whole life insurance.
  • Term life insurance does not have a cash value benefit life whole life does. 
  • Term life premiums are based on a person’s age, health, and life expectancy.

How Term Life Insurance Works

When you buy a term life insurance policy, the insurance company determines the premiums based on the value of the policy (the payout amount) as well as your age, gender, and health. In some cases, a medical exam may be required. The insurance company may also inquire about your driving record, current medications, smoking status, occupation, hobbies, and family history.

If you die during the term of the policy, the insurer will pay the face value of the policy to your beneficiaries. This cash benefit—which is, in most cases, not taxable—may be used by beneficiaries to settle your healthcare and funeral costs, consumer debt, or mortgage debt among other things. However, if the policy expires before your death, there is no payout. You may be able to renew a term policy at its expiration, but the premiums will be recalculated for your age at the time of renewal. Term life policies have no value other than the guaranteed death benefit. If you would like to schedule a call to learn more, just click here or you can leave a comment or contact me here.