What is Term Life Insurance?

Of the different types of life insurance that you can choose from, term life insurance is likely the easiest to define and explain. Term life insurance is more of a temporary form of life insurance designed for people who have long-term financial goals with some short-term responsibilities. Its affordability also appeals to many people on a tight budget because you can typically get a large amount of insurance for a cheaper price than other types of insurance.

How a Term Life Insurance Policy Works
A term life insurance policy is only good for a certain "term." Most insurance companies offer term policies for 5, 10, 15, 20 or 30 years. This means that the insured person pays the premiums each month (or annually, whichever way it is set up) for that term. If you choose a 30 year plan, you will pay the premiums for 30 years. If you die during that time, your beneficiary receives the face value of the policy. A $500,000 policy, for instance, will pay $500,000 to your beneficiary. If, however, you outlive the term, you are no longer insured under the term life policy.

Primary Purpose of Term Life Insurance
The main purpose of term life insurance is to provide the money needed to pay off any outstanding responsibilities once an insured person dies. For instance, a person may get a policy that has enough coverage to pay off a mortgage in the event of their death. This helps to ensure that the surviving spouse is not stuck with the remaining mortgage and a smaller income. A term policy also provides money for a surviving spouse to use for living expenses.

Types of Term Life Insurance Policies
There are two basic types of term life insurance policies: adjustable and level term. With an adjustable term life insurance policy, your premiums could fluctuate based on the current mortality rates and other factors that affect you and your lifestyle. However, premium prices can never be more expensive than the maximum level listed in your policy. Level term policies have the same premium payments throughout the life of the policy regardless of any changes. However, this is often more expensive because the insurer must take into account the rising cost over the length of the term.

Term life insurance policies are a great way to have peace of mind about your finances and your family's well-being after you pass away. It may also put your spouse's mind at ease knowing that they are financially independent instead of worrying about how they are going to pay their bills. Be sure to research the various types of insurance before making your final decision.