What Is the Definition of Term Life Insurance?

Term life insurance is a type of policy that provides cash remuneration to the survivors of the insured upon his or her death. It is purchased for a specific term of time, generally anywhere from one to thirty-five years, during which the premiums are locked in and will not go up. At the end of the term, there is an option to re-enroll, although the cost of the policy usually increases. Term life insurance, in contrast to whole life policies, does not accrue cash value and cannot be borrowed against.

Term life is a very popular choice with younger people, self-employed individuals and people who are seeking coverage to supplement a whole life policy, because of the low cost and uncomplicated nature of the policies. It provides basic coverage with no cash value at a lower price than other types of life insurance. Because the premiums are locked in for the term of the policy, the earlier the age at which a person purchases term life, the bigger the savings over the course of the coverage.

Term life insurance premiums are based upon age, health and other risk factors. There are four different tiers of life insurance rates that insurers put applicants into: preferred, preferred-plus, standard and substandard. Very few applicants qualify for the preferred-plus category, which offers the lowest rates. Most applicants, including those with minor health problems, are eligible for standard or preferred rates. If you have a history of more serious health problems such as diabetes or cancer, drug or alcohol abuse, or if you work in a hazardous occupation, you'll likely fall into the substandard category and rates will be substantially higher. Although you cannot control your health history, the one that you can do to immediately lower your life insurance premiums is to stop any tobacco use.

Rates for term life insurance can vary greatly from company to company, so it is important to shop around before making a purchase. The simplest way to compare rates and policy options is to visit one of the many websites that offers free quotes from multiple insurance companies. If you already have an insurance policy, such as homeowners or renters insurance, check with that agent to find out if there are discounts for customers with multiple policies.

It is essential for all adult members of a family to carry a life insurance policy. This is particularly true where the insured is the primary breadwinner in the home, but equally important in the case of a stay at home parent. In the event that the parent that cares for the child(ren) were to die, the surviving parent is left with a new set of bills and problems, as he or she must secure child care and possibly other household help. Consumer expert Clark Howard states that the simplest formula for choosing a coverage amount is to purchase ten times the household income in insurance for each adult. Carrying this much coverage will ensure that your family is able to maintain their residence and continue in the same lifestyle, saving them from having to make serious financial decisions during a difficult time.