Buying life insurance doesn’t have to be confusing. It will however, take understanding of some basic terminology, Take, for example, “Term Insurance”.
Simply put, term insurance is life insurance coverage that covers the life of the insured for a specific period of time, or “term”. That period of time can vary widely, from a few years to decades. It is generally used to financially protect the beneficiary during a period when they would be at greater financial risk should death of the insured occur.
One example would be a family with young children. Should the death of an income earner occur, not only would the children’s immediate lifestyle be impacted, but the potential to pay for college would also likely be impaired. Depending on the child’s age, a 15 or 20 year term policy could make sure they have financial resources through their childhood and college should the death of a parent occur.
Another example would be to cover the insured through a major purchase like that of a home or business. In this case, a decreasing term policy would provide coverage for the amount of any loans or mortgages until they are paid off. Should premature death occur, the loan amount would be covered by the policy. It is called “decreasing” term because the amount of life insurance coverage would decrease through the years as the loan balance gets smaller.
Term insurance is attractive because it is generally the least expensive form of life insurance on a cost-per-thousand basis. This allows it to be purchased in larger amounts more affordably than whole life insurance. Term insurance does not build up cash value and unless it pays death benefits while it is in force, it will expire at the end of the term.
For those seeking a large amount of coverage at an affordable price, term insurance may be your best option.