Term Life Insurance: What It Is, Different Types, Pros and Cons
Investopedia / Madelyn Goodnihgt
What Is Term Life Insurance?
Term life insurance provides a death benefit that pays the beneficiaries of the policyholder throughout a specified period of time.
Once the term expires, the policyholder can either renew it for another term, possibly convert the policy to permanent coverage, or allow the term life insurance policy to lapse.
KEY TAKEAWAYS
- Term life insurance guarantees payment of a stated death benefit to the insured's beneficiaries if the insured person dies during the specified term.
- These policies have no value other than the guaranteed death benefit and don’t feature a savings component (as is found in permanent life insurance products).1
- Term life premiums are based on a person’s age, health, and life expectancy.
- Depending on the insurance company, it may be possible to turn term life into whole life insurance.
- You can purchase term life policies that last 10, 15, 20 years, or more, and can usually renew them for an additional term.
Term Life Insurance Explained
How Term Life Insurance Works
When you buy a term life insurance policy, the insurance company determines the premium based on the policy's value (the payout amount) and such factors as your age, gender, and health. Other considerations affecting rates include the company’s business expenses, how much it earns from its investments, and mortality rates for each age.2
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