Term Life Insurance

Term life insurance or term assurance is life insurance which provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.

Term life insurance is the original form of life insurance and can be contrasted to permanent life insurance such as whole life, universal life, and variable universal life, which guarantee coverage at fixed premiums for the lifetime of the covered individual. Term insurance is not generally used for estate planning needs or charitable giving strategies but is used for pure income replacement needs for an individual. Unlike term insurance, many permanent life insurance products also build a predetermined cash value over the life of the contract, available for later withdrawal by the client under specific conditions. However, on most cash value policies (like whole life insurance), the only way to receive the cash value is to cash out the policy. In a whole life policy, upon death of the insured, the beneficiaries receive the face value of the insurance, but not the cash value. Some financial advisers advise buying term life insurance and investing the difference elsewhere to those who still qualify to contribute to other tax-deferred investment growth such as IRA's or 401k's, but this strategy can backfire if the individual needs to renew and is unable to do so due to health reasons.