Term life insurance is a type of temporary life insurance policy that pays a death benefit to the policy’s beneficiary in the event that the insured person dies while the policy is in force. This type of policy typically has fixed premiums, and can often be renewed or converted into another type of life insurance once it matures.
Who it is for?
This type of life insurance is best for people who want to ensure their family is financially taken care of in the event of their death – but have such a need that may be temporary. It also favored by those looking to save money on coverage, as term policies are generally less expensive than other life insurance types.
How it works?
After a policy is issued, the policyholder makes periodic premium payments to the insurance company in exchange for coverage. Although policies have a “grace period”, a policy will lapse if premiums go unpaid for long enough. If the insured person dies while the policy is active, the insurance company will pay a death benefit to the policy’s beneficiary. This death benefit is usually tax-free. At the end of a predetermined number of years, the policy will end and no further benefits or premium payments will be due.
Different types of coverage in existence
Aside from the term, most other types of life insurance are permanent. These policies – including whole life and universal life – usually build cash value which can be borrowed from. They can grow from fixed interest or from the performance of the policy’s underlying investments.
Term life offers the benefit of affordability. It also offers the benefit of flexibility for those who only have a temporary need for life insurance and don’t need to enter a lifetime contract.
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