What Is Term Life Insurance?

If you are looking for a low-cost life insurance plan that only spans a few years, term life insurance may be the best match for you. This type of insurance policy offers basic coverage and can protect your loved ones or business partners from financial devastation in the event of your death. Proceeds from this type of insurance policy can be used to pay down debt, transfer wealth, support your family by replacing lost income that you were earning, or to pay for your child's college education. The proceeds are usually income tax free and are paid directly to the beneficiaries listed on the policy.

How Term Life Insurance Works
Unlike standard life insurance policy, term life insurance plans allow you to choose the amount of the policy, as well as the duration of the policy's coverage. Most insurance companies allow you to get a term life insurance policy in increments of five years, up to a maximum of 30 years. You are guaranteed the rate you pay at the beginning of the policy for the entire length of the policy, but some insurance companies may offer variable rates if you can only afford a lower premium.

Benefits of Term Life Insurance
Term life insurance offers several benefits over permanent life insurance policies. Permanent life insurance policies cover an individual until their death, regardless of how old they are when they die. Term life insurance policies are designed to provide coverage only for a certain number of years and a specified time period. This makes these policies much less expensive than permanent life insurance, and for many people, a much more appropriate choice.

Some of the key benefits of term life insurance include:

- Can be purchased for 5, 10, 15, 20 or even 30 years
- Pays beneficiaries the face value of the insurance policy upon death
- Typically costs less than permanent life insurance plans
- May be renewed or extended up to a certain age
- Can be converted to a permanent life insurance policy when needed
- Policy payment stays the same throughout the policy period

In many cases, the insurance company will require a medical exam to determine the extent of coverage needed. You can shop around for the best rates or quotes on term life insurance, and find out if you can convert your policy to a permanent life insurance plan in the future if you need to. Remember that some insurance plans are renewable up to a certain age limit.

Sources:
Fidelity Insurance: Life Insurance 101
Term life Online: How Term Life Insurance Works
Life Insurance In-Depth: Term Life Insurance - Affordable Security