What Is Term Life Insurance?
Before we answer the question, "what is term life insurance?" it's important to understand the purpose of investing in life insurance in the first place. Life insurance is long-term coverage that offers a lump-sum payment to designated beneficiaries in the event of the insured's death. This settlement can be used by your beneficiaries to help replace lost income, cover funeral arrangements and other costs, continue paying off a mortgage, cover college tuition or any other necessary expenses. In basic terms, life insurance is a way for you to help take care of your family even after you're gone.
However, it's not as simple as picking up the phone and ordering any life insurance policy. As with any other long-term investment, there are several options to consider in order to get the best coverage possible for the people you love. Compare the benefits of different types of policies, and learn the answer to the question: "What is term life insurance?"
Compare types of life insurance
If you're shopping for life insurance, you have a few different options to choose from. For example, if you're just looking for basic, long-term coverage for your family, a term life insurance policy may be right for you. However, if you're interested in purchasing a permanent policy that also offers an investment component, other types of life insurance such as whole life insurance or universal life insurance may be better choices for you. Continue reading to learn more about term life and other types of life insurance, and work with a licensed agent to find out which is right for you.
Whole life insurance
This type of policy offers an investment fund in addition to permanent life coverage. If you choose to purchase whole life insurance, you'll likely have a higher fixed premium with part of your payment going toward investments made by the insurance company intended to help build cash value. That means your whole life insurance policy may help you build equity and function as a type of tax-deferred savings fund, or it may be used as a way to help preserve the wealth you intend to leave to your beneficiaries after you're gone.
Universal life insurance
This type of policy is similar to whole life in that it offers permanent coverage for the duration of your lifetime. It also may be used as a way to build equity with tax-deferred savings. Universal life insurance policies are similar to term life policies in that they are most often used as a way to preserve the wealth an insured person intends to transfer to his or her family after death. Premiums for universal life insurance policies are typically higher than term life, but they do give you the option to raise or lower coverage amounts and premiums as you need to over the course of your lifetime.
Term life insurance
So, what is term life insurance? Typically, it's the most inexpensive life insurance option available. Rather than purchasing permanent coverage, term life insurance policyholders have invested in coverage for a specific period of time — typically 10-30 years. Your coverage acts as a safety net for your family to help them replace lost potential income and cover mortgage payments, pay for college and take care of other expenses after you're gone. Term life insurance premiums are typically fixed for the duration of the policy and offer a relatively inexpensive solution to help protect the people you love.
Which type of life insurance is right for you and your family? The best way to choose a smart policy is to discuss your specific needs and work one-on-one with a licensed agent.