What is a Term Life Insurance Policy?

By Sabah Karimi

  • Overview

    Term life insurance policies provide money to beneficiaries listed on the policyholder's account when the insured dies, and these funds can be used to manage a number of different expenses. Individuals can purchase term life insurance at any age, and this type of insurance is an inexpensive and convenient way to secure the financial future of family members.
  • Significance

    All premiums paid for term life insurance are used to pay entirely for the insurance, and not for any investments or money market accounts. he cash value of a term life insurance policy may be much higher than any savings or mutual funds accounts the insured may set up for their family, so obtaining life insurance can be the best financial decision for those who are approaching the end of their life. Beneficiaries who receive money from the insured's policy can use the funds to cover funeral expenses, mortgage costs, household expenses and even personal expenses such as college tuition if they wish to do so.
  • Process

    Individuals interested in obtaining term life insurance will need to undergo a physical exam from a physician to determine their state of health, and provide information about any current or previous medical coverage. Insurance policy providers have different assessment criteria for granting term life insurance, but this type of insurance is typically the easiest type of life insurance to apply for and obtain. Policyholders may choose to purchase 1-year, 5-year, 10-year or 30-year insurance premiums depending on their budget; annual term policies will carry a premium that may change from year to year, while multiple-year premium rates will remain constant.

  • Benefits

    Term life insurance policies are typically more affordable than whole life insurance, and can be purchased for periods of one year, ten years or even 30 years. This type of policy offers more flexibility for those who do not want to pay for a premium they may not even use, and the insurance premium can be renewed if the policyholder wants to extend coverage after their initial coverage is over. If the insured wants to convert to a more permanent form of insurance, many life insurance providers offer convenient conversion programs so that policyholders can continue coverage with whole life insurance, or universal life insurance.
  • Types

    Term life insurance policies are different than whole life insurance policies because the term policy pays the face amount of the policy to the beneficiary and does not include any investments such as bonds or money markets. Some term life insurance policy providers allow policyholders to convert their existing permanent life insurance policy into term life insurance up to the age of 75; this can lower the costs of the premium and offers additional advantages to the policyholder and their beneficiaries. The age of life insurance protection may vary by state; policyholders can consult with the term life insurance provider to learn about age cutoffs and classifications.
  • Warnings

    While term life insurance offers several benefits, there are some drawbacks to this type of policy. Term life insurance does not provide permanent coverage. And, when the policy coverage period is over, the premium can rise significantly based on the insured's age and state of health. Every term life insurance provider uses different criteria for assessing fees and charges, and these are usually based on the insured's health, age, gender and previous coverage.
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