Words like term life insurance are always popping up in television commercials or during family conversations when your overactive teenager does some extreme sport that makes you wonder if life insurance is in his immediate future. But what exactly is term life insurance, and is it the right insurance for you?
What Is Term Life Insurance?
The simplest definition is given by Business Dictionary, which states that "term life insurance is an insurance policy that only stays in effect during a specific timeframe or until the person who is insured reaches a certain age." This means you are not obtaining a life insurance policy for your entire life or up until the day you die. Instead, you can choose how long the policy runs, anywhere from 5 years up to 40 years.
Once the "term" period ends, the policy becomes canceled unless the insurer passes away during the time period the policy covers. Then the beneficiaries get the full face value amount without having to pay any taxes on the money, according to Fox Business. Depending on the insurance company, you may be able to convert the term life policy into a permanent policy when the term period is about to end.
Why People Like Term Life Insurance
Term life insurance is a no-frills policy. You are only getting life insurance coverage, and you have more control over how many years the policy will cover. This is different from other types of life insurance policies where the insurance company also tacks on an investment component, making the policies more expensive, according to Smart Money.
People like term life insurance because it can go toward paying off debts, a mortgage or a child’s college education. Premiums are inexpensive, making it ideal for people who want to have life insurance but have limited budgets. Although you can’t grow any cash value to this policy over time, it can be a supplemental policy to other life insurance you have. Another bonus is that many term life policies don’t require a medical examination.