Term Life Insurance Definition: Understanding How a Temporary Policy Works

how term life insurance works

Term life insurance is often referred to as a temporary policy or a policy that you rent. Why? Because term life insurance is only meant to cover you for a limited period of time. How long is term life insurance? The length of your policy can be anywhere from one year up to 30 years – the choice is up to you.

With term life insurance, your policy essentially composed of three main parts: the face amount (the limit or death benefit), the premium (your cost to maintain the policy), and the length of coverage (the policy’s term that you select).

If you were to die during that specific term (the duration of your policy), your beneficiaries, established during your estate planning. will receive a set payout (the death benefit) as indicated on your policy. Note: There are some term life policies that may allow you to continue the policy after the level premium term is up, however you’ll typically pay higher premiums and the face amount may be reduced.

In a way, term life insurance operates much like your vehicle insurance does, where if you have a six-month policy and have an accident during that time, you’ll be compensated by the insurance company to get your car fixed. However, if at the end of the six-month policy term you have no accidents, you won’t be getting any of that premium money back.

Key Benefits of Term Life

Term life insurance can help provide the immediate funds for paying your final expenses, mortgage payments and bills, or providing a monthly income for a period of time as your family adjusts to the loss of your paycheck.

Moreover, it can be an affordable way for you to address the difficult question of how your family will financially manage if you were to pass away unexpectedly. Key benefits may include:

  • An affordable way to have your life insurance needs covered with low initial costs and coverage limits ranging anywhere from $5,000 to several million
  • The flexibility of selecting the term length that best meets your needs – anywhere from 5, 10, 20, 25, or 30 years
  • The flexibility of selecting the term length that best meets your needs – anywhere from 5, 10, 20, 25, or 30 years
  • A level death benefit that guarantees that the amount of coverage won’t decrease for as long as you own the policy and pay your premiums on time

Term life insurance may be appropriate if you’re seeking an affordable way to replace your income during your working years, and at a time when you have people who are dependent on you to meet everyday living expenses and other debt obligations.

For more information on term life insurance or to determine “how much term life insurance do you need,” visit the Protective Learning Center.

Source: www.protective.com

Category: Insurance

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