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- Dictionaryterm life in·sur·ance
noun
- 1. life insurance that pays a benefit in the event of the death of the insured during a specified term.
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- Term life insurance is a type of life insurance that runs for a specific amount of time, for example, 10, 20, or 40 years. If you pass away during this time frame, your loved ones will get a cash lump sum from your insurer. You set how long you want the coverage to last, and that affects your premiums.
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Term life insurance provides a cash lump sum for your loved ones if you die within a set period. Find out how level, decreasing and increasing term insurance works, and how to get the right cover for you and your family.
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Term life insurance provides a death benefit that pays the beneficiaries of the policyholder throughout a specified period of time.
Once the term expires, the policyholder can either renew it for another term, possibly convert the policy to permanent coverage, or allow the term
Term life insurance guarantees payment of a stated death benefit to the insured's beneficiaries if the insured person dies during the specified term.
These policies have no value other than the guaranteed death benefit and don’t feature a savings component (as is found in permanent life insurance products).
Term life premiums are based on a person’s age, health, and life expectancy.
Depending on the insurance company, it may be possible to turn term life into whole life insurance.
When you buy a term life insurance policy, the insurance company determines the premium based on the policy's value (the payout amount) and such factors as your
Other considerations affecting rates include the company’s business expenses, how much it earns from its investments, and mortality rates for each age.
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, family history, and similar information.
If you die during the policy term, the insurer will pay the policy's face value to your beneficiaries. This cash benefit—which is not typically taxable—may be used by beneficiaries to settle your healthcare and funeral costs, consumer debt, mortgage debt, and other expenses. However, beneficiaries are not required to use the insurance proceeds to settle the deceased's debts.
Thirty-year-old George wants to protect his family in the unlikely event of his early death. He buys a 10-year, $500,000 term life insurance policy with a premium of $50 per month.
If George dies within the 10-year term, the policy will pay George’s beneficiary $500,000. If he dies after the policy has expired, his beneficiary will receive no benefit. If he remains alive and renews the policy after 10 years, the premiums will be higher than his initial policy because they will be based on his current age of 40 rather than 30.
There are several types of term life insurance. The best option will depend on your individual circumstances. Generally, most companies offer terms ranging from 10 to 30 years, although a few offer 35- and 40-year terms.
has a fixed monthly payment for the life of the policy. Most term life insurance has a level premium, and it’s the type we’ve been referring to in most of this article. As we mentioned before, this type of policy generally provides coverage for a period ranging from 10 to 30 years. The death benefit is also fixed.
Because actuaries must account for the increasing costs of insurance over the life of the policy's effectiveness, the level premium is comparatively higher than yearly renewable term life insurance.
Yearly renewable term (YRT) policies
are one-year policies that can be renewed each year without providing evidence of insurability.
The premiums rise from year to year as the insured person ages. Thus, the premiums can become prohibitively expensive as the policyholder ages. But they may be a good option for someone who needs temporary insurance.
Term life insurance is attractive to
Parents can obtain substantial coverage for a low cost, and if the insured dies while the policy is in effect, the family can rely on the death benefit to replace lost income.
These policies are also well-suited for people with growing families. They can maintain coverage needed until, for example, their children reach adulthood and become self-sufficient.
The term life benefit may be equally useful to an older surviving spouse. However, premiums for
people who wait until they are older
to apply for insurance will pay higher premiums than if they’d gotten a level-term policy when they were younger.
The main differences between a term life insurance policy and a permanent insurance policy (such as whole life or universal life insurance) are the duration of the policy, the accumulation of a cash value, and the cost. The right choice for you will depend on your needs. Here are some things to consider.
Term life policies are ideal for people who want substantial coverage at a low cost.
People who own whole life insurance pay more in premiums for less coverage but have the security of knowing they are protected for life.
People who buy term life pay premiums for an extended period, but they get nothing in return unless they have the misfortune to die before the term expires. Plus, term life insurance premiums increase with age.
Unless a term policy is a
, the company could refuse to renew coverage at the end of a policy's term if the policyholder develops a severe illness. Permanent insurance provides coverage for life as long as the premiums are paid, regardless of changes in the insured’s health.
is a term life policy that includes a conversion rider. The rider guarantees the right to convert an in-force term policy—or one about to expire—to a permanent plan without going through underwriting or proving insurability. The conversion rider should allow you to convert to any permanent policy the insurance company offers with no restrictions.
The primary features of the rider are maintaining the original health rating of the term policy upon conversion (even if you later have health issues or become uninsurable) and deciding when and how much of the coverage to convert. The basis for the premium of the new permanent policy is your age at conversion.
It depends on your family's needs. Term life insurance is a relatively inexpensive way to provide a lump sum to your dependents if something happens to you. If you are young and healthy, and you support a family, it can be a good option. Whole life insurance comes with substantially higher monthly premiums. It is meant to provide coverage for as lo...
If you're alive when the term expires, you get nothing back from your term life insurance policy. The death benefit is only payable to your beneficiaries if you die. That is the reason why term life insurance is relatively inexpensive. Most people outlive their term life insurance policies.
It depends on their age. Insurance companies seta maximum age limit for term life insurance policies. This is usually 80 to 90 years old, but may be higher or lower depending on the company. The premium also rises with age, so a person aged 60 or 70 will pay substantially more than someone decades younger.
Term life insurance is a policy that pays a death benefit only if the insured person dies during a specified period. Learn about the different types of term life insurance, how they work, and their advantages and disadvantages.
- Julia Kagan
- 2 min
Aug 14, 2024 · We've compared the term policies of six of the biggest life insurance providers in the UK to bring you the best provider. Find out how much term life insurance costs and what your policy could cover.
Jul 5, 2024 · What are the different types of life insurance? 1. Term assurance. Standard life insurance is called term life insurance. You choose how long you want to be covered – the term. If you die within the term, the policy pays out. If you don't die during the term, the policy doesn't pay out the death benefit and the premiums you've paid aren't ...
Jan 25, 2024 · Term life insurance policies will give you life cover for a limited time. In this guide, we'll outline how term life insurance policies work and whether a term policy is right for you. What is the definition of term insurance? A term insurance policy is an insurance policy that covers a limited period of time.
Term life insurance is a type of insurance policy that covers you for a fixed period or ‘term’ of years. For example, if you take out a fixed-term life insurance policy that covers you for 50 years and you die within that time frame, then your beneficiaries will receive a cash lump sum.
Jul 30, 2024 · Term life insurance is a policy that provides coverage for a fixed period of time, such as 30 years, and pays a death benefit if the insured dies during that time. Learn about the different types of term insurance, how they work, and how they compare to whole life insurance.
