Term Insurance provides life insurance coverage for a specified term. The policy does not accumulate cash value. Term is generally considered “pure” insurance, where the premium buys protection in the event of death.
There are three key factors to be considered in term insurance:
- Face amount (protection or death benefit),
- Premium to be paid (cost to the insured), and
- Length of coverage (term). (e.g. 1, 5, 10, 20,30, 40 years).
At the end of the term, some policies contain a renewal or conversion option. With guaranteed renewal, the insurance company guarantees it will issue a policy of an equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured’s age at that time.
Term Insurance is the right choice for you if:
- You’ve got dependent children
- You’ve got debts that need short-term protection
- You’re a business owner with substantial start-up costs
- You have house or planning to purchase.
Another common type of term insurance is mortgage life insurance, which usually involves a level-premium, declining face value policy. The face amount is intended to equal the amount of the mortgage on the policy owner’s property, such that any outstanding amount on the applicant’s mortgage will be paid should the applicant die.