Term life insurance is a type of life insurance that doesn't have many extra features. It is a life insurance policy for a certain amount of time. By signing a contract, you buy a certain amount of coverage for a certain amount of time. You pay for that amount of coverage, and when that time is up, the policy is no longer valid. For example, the term could be until you retire, until your children are grown, or until you've paid for college.
Term life insurance is the cheapest insurance policy you can get. This means you can spend a lot less and invest the extra money in something better. It doesn't build up cash value, and the premium usually goes up as the person with the policy gets older. Term life insurance usually pays for
a specific length of time, like 1 year, 20 years, or 30 years.
If you die while the policy is still in effect, term life insurance will pay out the agreed-upon amount to your beneficiaries. But the policy doesn't give any returns other than the stated benefit, and once the policy is over, the insurance coverage ends and the money goes to the insurance company. Some term insurance policies let you renew for more than one year at the same rate, while others don't. Most of the time, the first ones are a bit more expensive.
Most people should get term life insurance if they are:
- Who only need coverage for a short amount of time,
- Young and trying to find cheaper rates,
- Buying a home or car, where a loan will become less of a financial burden over time.
When each term of a term life insurance policy is up, the policy must be renewed. Before you buy a term life insurance policy, you should find out how it can be renewed to make sure you can get insurance in the future. There are some common choices, such as:
- Renewed every year, and the premium goes up every year.
Level term: The premium stays the same for a certain amount of time, like 5, 10, 15, or 20 years, and then goes up sharply.
- Automatic Renewal: This feature will cost you more money.
There may be other choices with term life insurance policies, such as:
- Re-Entry: It has a lower premium than a policy that renews on its own. You can renew at the same low rate offered to new customers, but you'll have to pass a physical exam. If you get sick, your insurance premium could go up and cost you more than an
policy that renews itself.
Convertible term means that you can switch to a whole life insurance policy later on.
