Term Life Insurance: The Basics

Shutterstock

Life insurance can be kind of scary to think about. After all, who wants to contemplate their own mortality? However, everyone’s life will eventually come to an end. It’s up to us to be prepared for this when it occurs. One of the ways you can help your family through the tough time of dealing with your passing is through investing in life insurance.

One of the often-misunderstood versions of life insurance is term life insurance. Term insurance, also occasionally called “pure life insurance,” is actually quite simple. Read on for more details about how you can leave your family with some much-needed finances in the event of your passing.

What Is Term Life Insurance?

Term life insurance is a type of insurance that is guaranteed to pay out a pre-stated benefit of financial compensation, in the event of the policyholder’s death. These types of life insurance only last for a “term,” or a set period of time, and the premiums paid on the insurance are dependent on the policyholder’s age and general health.

When the term ends, the coverage also ends. However, at this point, the holder can choose to either renew the policy for another term or convert it into long-term, universal life insurance. Unlike a whole like insurance policy, there is no savings component; term life insurance has no value, only the death benefit payout.

Simple Life Insurance

If you just want simple, straightforward term life insurance, you can usually invest in a rather affordable policy to help with expenses like the funeral, healthcare, consumer debt and the like. However, it doesn’t cover things like charitable giving or estate planning. Term life insurance premiums do cover the cost of underwriting insurance.

This, in turn, means that term insurance premiums are typically markedly lower than whole life insurance policy premiums. As such, people who are younger, in good health and expecting to live for many more years often get term life insurance as a safety net against unforeseen, accidental death.

As an example, a healthy person who is 35 and does not smoke could get a term life insurance policy for 20 years with a $250,000 face value for roughly $25 per month. Assuming that person lives to be 55, the term would then end and the life insurance policy would either need to be renewed or converted into whole life insurance.