Term insurance, also known as term life insurance, is insurance against the death of the policyholder for a specific time period, known as the term. It is a temporary form of insurance that expires when the individual dies or stops paying the premium.
Time Period/Term
The time period specified in a term life insurance policy can vary, depending on the company and choice of plan. A typical term can be for 1, 5, 10, 15, 20 or 30 years, with a premium that is set at a specific monthly or annual cost during the entire term of the insurance coverage.
Usage
Many people use term life insurance to help ensure that their families will have sufficient cash to cover living expenses for at least a short while in the event of their death. This is frequently a concern when only one member of the family brings in a majority of the income, and many expenses must be covered in the near-term future, such as child care, mortgage payments or college tuition.
Cost
During the original term of term life insurance, costs are usually reasonable. Once the original term has expired, costs may rise, and it can be extremely expensive to continue the same level of coverage.
Payout
Payout occurs when the individual covered by term insurance dies while the policy is still valid. The policy holder specifies the beneficiaries of his policy, usually that person's spouse or children, and the insurance company pays the full amount of the policy to the beneficiaries.
How to Get Term Insurance
Most insurance companies offer term life insurance as one of many insurance options available to their customers. Most companies also allow customers who buy term life insurance to switch to permanent life insurance if they later choose to do so.
Requirements
Term life insurance often has requirements. Individuals over a certain age, usually 75 to 80, depending on the insurance company, are not eligible to get this kind of insurance, or must give it up or convert it to a different type--such as permanent life insurance--if they carry it upon reaching a certain age. Insurers also usually require a health check before issuing term life insurance and will deny coverage to individuals with a terminal illness.
Considerations
Because term insurance expires when the individual stops paying for it, it cannot be relied upon as a long-term solution for life insurance or as an investment. Also, illnesses can affect eligibility for coverage, so even though someone may be eligible when she first applies, she may be unable to renew the policy later.
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