Term insurance is simple and straight forward life insurance that is for a certain period of time (usually 1 year, 10 years, 20 years or 30 years). So that if the insured dies while the insurance is in effect, the beneficiary receives payment of the value of the insurance. If the insured person outlives the term of the insurance, the insurance will expire unless the insurance is renewed.
Term insurance does not have an investment component and only protects your family during the term of the policy. This is how most insurance works (car, medical, homeowners) and means that unless there is a cash payout during the coverage period, the insurance company keeps the premiums.
Types of Term Life Insurance
There are three main types of term insurance: level term, renewable term and declining term.
Level Term Insurance is the most popular type of life insurance. It enables the purchaser to lock in a level premium and amount of coverage for the specified length of term. For example, a premium of $100 per year for ten years purchasing $100,000 of coverage for ten years.
Renewable Term Insurance automatically renews at the end of each term (usually one year), regardless of any changes in health or insurability. At renewal, the premium changes to reflect the insured's probability of death. In nearly all cases, this means that the premium rises at renewal.
Decreasing Term Insurance is relatively rare. It has a level premium and a gradually shrinking amount of coverage. These policies are utilized to fund obligations for which the principal decreases over time, like a mortgage.
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