Term Life Insurance is a type of life insurance policy that provides coverage for a specific period or “term” of time. If the insured individual passes away during the term of the policy, the insurance company pays a death benefit to the designated beneficiaries. This death benefit is a lump-sum payment, intended to provide financial support and help cover expenses such as funeral costs, outstanding debts, and day-to-day living costs for the beneficiaries.
The term of the policy is determined at the outset and can range from one year to several decades, with common terms being 10, 20, or 30 years. Premiums are typically fixed and are calculated based on the insured’s age, health, and life expectancy at the time of the policy’s inception. Term life insurance is often considered a straightforward and cost-effective way to provide financial security due to its simplicity and lower premiums compared to permanent life insurance options.
One key characteristic of term life insurance is that it does not accumulate cash value over time, as some other types of life insurance do. This means that if the policy expires and the insured is still living, there is no refund or payout, and the insurance coverage simply ends unless the policy is renewed or converted to a permanent policy, if those options are available under the terms of the contract. Term life insurance is often chosen by individuals seeking temporary coverage with a clear end date, such as until children are grown and financially independent, or a mortgage is fully paid.