Key features of term life insurance include:
- Coverage Period: Term life insurance policies are typically purchased for specific terms, such as 10, 20, or 30 years. The coverage period is chosen by the policyholder based on their financial needs and circumstances.
- Death Benefit: If the insured individual dies during the term of the policy, the insurance company pays a death benefit to the policy’s beneficiaries. The death benefit is typically a lump-sum payment and is paid tax-free to the beneficiaries.
- Premiums: Term life insurance premiums are usually fixed for the duration of the term and are based on factors such as the insured individual’s age, health, lifestyle, and the amount of coverage purchased. Premiums are generally lower for term life insurance compared to permanent life insurance, making it an affordable option for many individuals.
- Renewability: Some term life insurance policies offer the option to renew the coverage at the end of the initial term, often at a higher premium rate. However, renewal is not guaranteed, and the premium may increase significantly based on the insured individual’s age and health status at the time of renewal.
- Convertibility: Many term life insurance policies include a conversion option, allowing the policyholder to convert the term policy into a permanent life insurance policy, such as whole life or universal life insurance, without undergoing a medical exam. This option provides flexibility for policyholders who may want to extend coverage beyond the initial term.
- No Cash Value: Unlike permanent life insurance policies, such as whole life or universal life insurance, term life insurance does not accumulate cash value over time. If the insured individual outlives the term of the policy, no benefits are paid out, and the policy expires with no cash value.
Term life insurance is often chosen by individuals who want affordable, temporary coverage to protect their loved ones financially during a specific period, such as while paying off a mortgage, raising children, or covering other financial obligations. It provides peace of mind knowing that beneficiaries will receive a death benefit if the insured individual dies during the term of the policy.
