Temporary (better known as Term) life insurance is a life insurance policy that covers policy holders for a set period of time in the event of death. If the policy holder passes away during the time frame of an active term life policy, payment of the death benefit is made to the designated beneficiary. Term life insurance policies are the most affordable options for death benefits per dollar amount of premiums during the designated period of time the contract is active. However, no payments are made if the insured passes away after the time is expired, even if only by one day.
Purpose of Term Life Insurance Policies
Term life insurance policies are designed to assist the beneficiary to replace the lost income of the deceased for final expenses, such as funeral costs, mortgages, dependent care, consumer debt, and college education for the beneficiary and dependents. Term life policies are highly desired by those who are actively employed, as it allows time to properly save for retirement and ensure the security of family members. While the term life policy is in effect, it is recommended that additional sources of income are obtained to ensure retirement security, such as IRA or 401-k accounts. Term life policies are not designed to provide for charity or for estate planning.
Common Types of Term Life Insurance Policies
The most common terms of duration for Term life policies are for 10, 15, 20, or 30 years. Annual rates remain set for each and every year of the policy. The annual cost is determined by the insured’s insurability status and the length of time the policy is in effect for. An increasing amount of term life insurance policies include options to convert the contract to a Whole Life policy.
Who Benefits from Term Life Insurance Policies?
Everyone should have some type of life insurance policy in place, especially those individuals with children. In order to protect your child/children should something happen to you or your spouse it is necessary to have some type of life insurance in place. A term life insurance policy allows you to plan for your child or loved one’s future should something happen to you.
The amount of term life insurance that is necessary and the length of time for the policy will depend directly on your current situation. The main breadwinner of a household with two small children will want to have a term life insurance policy to cover the children throughout their young life and through college. A person who has older children may only need a term life policy of five or ten years to ensure that their children make it through college. Speaking with an insurance agent about the types of policies available is the best way to determine the amount of insurance that is necessary for your unique situation.
Frank Harrington used to work in insurance before he decided to try freelance writing for a living. He now writes for InsuranceComparison.net, where, like the name says, he looks at how to compare insurance. He spends his free time reading about finance and watching for the next big IPO.