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What is Term Life Insurance?

Term Life Insurance, also known as Pure Life Insurance, is a type of life insurance policy that covers the policyholder for a “Term” (a specific amount of time). Term life insurance guarantees payment of a stated death benefit, to the insured’s beneficiaries, if the insured person dies during a specified term.

Characteristics of Term Life Insurance:

• A death benefit pays the beneficiary of the policyholder upon death during the specified period of time.
• These policies have no value other than the guaranteed death benefit and feature no savings component as is found in a whole life insurance product.
• Term life premiums are based on policy value (payout amount) a person’s age, health, and life expectancy.
• Depending on the insurance company, it may be possible to turn term life into whole life insurance.
• You can purchase term life policies that last 10, 15, or 20 years.
• The death benefit—which is, in most cases, not taxable—may be used by beneficiaries to settle your healthcare and funeral costs, consumer debt, or mortgage debt, among other things.
• If the policy expires before your death, there is no payout. You may be able to renew a term policy at its expiration, but the premiums will be recalculated based on your age at the time of renewal.

Putting Term Life Insurance to use: 

An Example.

A couple purchases a house. A common use of term life insurance, as discussed above, is to cover expenses in the event of a tragedy, such as mortgage payments. 

In this scenario, the couple relies primarily on the husband’s income to make monthly mortgage payments. If the husband were to die, the wife would be left to bear the full burden of the monthly mortgage payments. 

A Term Life Insurance Policy on the husband, with the wife as the beneficiary, would allow the couple to cover some, or all of that risk, by paying a premium for a term life insurance policy that would pay a death benefit that could be used to cover mortgage expenses. 

The couple decides on premium frequency, the amount of coverage, and pays the premium. The policy remains in force, which would pay the beneficiary a death benefit, for the duration of the term policy.

Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage, or allow the term life insurance policy to lapse.

To Conclude this Conversation…

While there are a variety of life insurance products available, Term Life policies tend to be more affordable. They typically provide an amount of coverage for much less than permanent types of life insurance.

Although Term Life Insurance is widely used, it can be complicated. That’s why we’re here. The appropriate amount, and correct type of life insurance is a key part of a financial plan. Too little could leave your beneficiary in a financial bind, and no one likes to overspend.

If you have any questions, or would like to continue the conversation, reach out to us at info@cosnerfinancialgroup.com.

Resources:

Term Life Insurance – What Is It & How Does It Work? | AIG Direct

https://www.investopedia.com/terms/t/termlife.asp

Disclosures:

This material is for informational purposes only and is not investment, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Triad Advisors, LLC does not provide tax or legal advice.