Term Life Insurance

Term life insurance provides benefits only if the insured person dies within the period covered by the policy. This period may range from 1 to 40 or more years.

Term life insurance costs less than other types of life insurance for the same amount of coverage because it has no cash value. Many insurance experts recommend term insurance for people on a limited budget or who require coverage for only a short time. Many people with young children buy term insurance to cover the period until the children are grown.

A type of term insurance called renewable term life insurance enables a policyholder to continue the policy automatically for another term when the policy expires. Such policies permit the policyholder to renew several times. But the majority of insurance companies do not permit renewal after the insured person reaches the age of 65 or 70.

The premiums rise each time the policy is renewed because the probability of death increases with age. The premiums rise dramatically for older people.

People who feel that in the future they may prefer a policy with a cash value can buy convertible term insurance. A person with such insurance can convert the term policy to a whole life policy when the term policy expires.

Another variation of term insurance is decreasing term insurance. The face value of the policy decreases during the period of the policy. A common type of decreasing term insurance used for paying off loans if the borrower dies is called credit life insurance. The amount of coverage that is provided by a credit life policy decreases as the loan is repaid. The insurance provides funds to cover the unpaid balance of a loan or mortgage if the borrower dies.

Many businesses provide life insurance to their employees through a group life insurance plan. Most such plans offer term insurance. In nearly all cases, the premiums for group life policies cost less than the premiums for individual policies, partly because group plans have lower administrative costs. In addition, employers often pay at least part of the premiums. Some labor unions, professional associations, and other organizations also provide group life insurance to their members.