Term insurance is simply one type of many life insurance options available. Term life differs from other types of life insurance available in several aspects, with the key being the term, or limited time aspect of the policy. A term life policy will have an expiration date, something the other types of insurance will not have.
Types
When it comes to life insurance, there is term life insurance and there is everything else. Term life insurance differs from other types of life protection in that a policy will expire and that premium payments are made for life insurance protection only. Other types of life insurance policies, such as whole life or variable life, use a portion of premiums for investment purposes and will be in place as long as the premium payments are made.
Identification
If a life insurance policy contains an expiration date, it is a term life policy. Term life policies can be in place up to 30 years. Other types of life insurance are often referred to as permanent life insurance, as they are intended to last until the insured person dies. Unlike other types of life insurance, term life does not build a cash value, as premium payments are made for the death benefit only. With a permanent type of life insurance, premiums are made both for the death benefit and for the additional amount that is used for investment purposes.
Function
The purpose of term life insurance is to provide a death benefit if the insured person dies within a specific time period only. Permanent types of life insurance are designed to provide a death benefit, as well as additional income through the use of investments and savings. Permanent life insurance policies take time to establish a cash value, and insurance companies use additional money during retirement as a selling point of these types of insurance.
Considerations
Because term life insurance provides a death benefit only, it is almost always cheaper than permanent life insurance. The price difference between the two types of insurance is greatest when a person is younger. As the insured person ages, term life insurance rates will increase and some insurance companies will not sell term life policies to people older than 65 years old.
Potential
One variety of term life insurance offers one of the primary benefits of permanent life insurance, which is getting money from your policy. This is known as return of premium term life insurance, and this type of policy will return your premiums if you are still alive when your policy expires. Return of premium policies are more expensive than traditional term life policies but are typically cheaper than a permanent life insurance policy.
Expert Insight
Life insurance can be a major decision that may have a great impact on one's family in the event of a death. Speaking with a qualified insurance professional who is able to explain the different types of insurance and how they can affect your individual situation is never a bad idea.
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