Term life insurance is a form of life insurance. It offers coverage for a preset and limited amount of time that is called the relevant term. The coverage provided is a fixed rate of payment coverage. Once the term expires, the individual’s coverage at the rate of the premiums that were charged before are not assured any more.
The client will be forced to drop their term life insurance coverage or to get a different coverage with varying payments and terms. Should the person who is insured die within the term, the death benefit amounts are paid out to the insured person’s beneficiary. This term life insurance proves to be the most affordable means of buying a major dollar value of death benefit coverage based on the premium cost charged.
Term life insurance turns out to be the first type of life insurance created, and it stands in contrast to permanent forms of life insurance like universal life, whole life, and variable universal life. These coverage types promise an individual pre set premiums that can not go up for the person’s entire life. People do not usually employ term insurance for strategies involving charitable giving or their needs for estate planning. Instead, they are thinking about a need to replace an income if a person passes away on his or her family unexpectedly.
A great number of the permanent life insurance policies also offer the advantage of increasing in value during the person’s contract. This cash value can then be withdrawn when certain conditions are met by the policy holder. Generally, withdrawing these cash amounts closes out the policy. Beneficiaries of permanent life insurance products get the insurance policy face value but not the cash value upon the holder’s death. Because of this, financial advisers will suggest that people purchase term life insurance for their insurance needs and then invest the money saved over permanent products in retirement accounts that provide tax deferred contributions and investment gains, like 401k’s and IRA’s.
Like with the majority of insurance policies, term life insurance pays out claims for the insured, assuming that the contract is current and the premiums are paid as due. Assuming that a claim is not filed, the premium is not given back to the policy holder. This makes term life insurance like home owners’ insurance policies that pay claims if a home becomes destroyed or damaged as a result of fire, or like car insurance policies that pay drivers if they have a car accident. Premiums are not refunded when the product is no longer required. Because of this, term life insurance like these other products only provides risk protection.