People buy term life insurance to help provide financial security for their families. It pays the death benefit specified by the policy to your spouse, children, or other beneficiaries when you die. Your beneficiaries can use the money for funeral expenses, to pay off the mortgage on your family's home, or for other financial needs. Term life has several key characteristics that distinguish it from other types of life insurance.
Term Life Policies Differ from Permanent Life
Permanent life and term life are the two basic types of life insurance. They have several important differences. Permanent life provides insurance coverage for your entire lifetime. You make a payment, known as a premium, to your insurer at a specified interval, often each month. The cost of the premium depends on your age when you buy the policy. The younger you are, the lower the price. For most permanent life policies, the premium never changes. A permanent life policy also builds up cash value. You can borrow against your policy's cash value or get the cash value if you cancel the policy.
Term Life Has a Specific Term
Term life insurance provides protection only for a specific period, or term. It does not cover you for your entire life. Term life terms often range between one year and 30 years. Like a permanent life premium, your term life premium is based on your age. It also remains the same during the term of your policy. When the term expires, you must buy another policy if you want life insurance.
Term Life Offers Several Advantages
For most policyholders, premiums for term life policies are cheaper than permanent life policies. Permanent life premiums are higher primarily because the policies build up cash value. The insurer uses your premiums to invest in stocks, bonds, and other financial instruments. The success of these investments determines your cash value. If you buy a term life policy, you can take the money you save by paying lower premiums and place it into investments of your own choosing. Term life also gives you more flexibility. Your insurance needs may change in the future. Having a whole life policy may not be ideal once your children have become adults and your mortgage is paid off.
Term Life Has Some Disadvantages
If you decide to renew a term life policy, the premium will be higher because you are older. Term life premiums become very expensive for people over the age of 60. A term life policy also has no cash value. Your premiums only guarantee a death benefit for your beneficiary. Unlike whole life, you do not receive any cash value from the insurer when you cancel the policy.
An Insurance Lawyer Can Help
The law surrounding the term life insurance policies and claims can be complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a consumer or estate lawyer.