“Term life insurance” is the simplest form of life insurance available in the market today.
It is also the cheapest way to obtain large coverage amounts for a relatively small premium, which makes it the choice of many of us who need coverage but cannot afford, or are not willing to purchase universal life insurance or whole life insurance coverage.
How Term Life Insurance Works
Term life insurance is similar to other types of insurance most of us are familiar with. An insurance premium is exchanged for a coverage amount over a specific period of time. It’s as easy as 1-2-3.
1. Decide how long you want coverage…typically 5, 10, 20 or 30 years.
2. Choose the amount of coverage you want.
3. Pay your premium until the policy period ends and purchase another policy, convert to a whole life policy, or simply go without life insurance.
How to Choose a Term
The term you choose will depend largely on your individual circumstances. Perhaps you just had a child and want to make sure your family is covered by a life insurance policy until the child is 20 years old and out of the house (hopefully).
Or maybe you’re starting a new business and want to obtain some cheap life insurance for a period of only 5 or 10 years to make sure your family is covered in the event you pass and the business will not provide passive income in your absence.
Obviously there are many circumstances that may guide your decision all which ways here.
Another important question to ask yourself is how much term life insurance you need.
Again, a highly individualized decision. Learn more about how much life insurance you need.
What Should I Do When the Policy Expires?
Evaluate your individual needs again at this point. Remember, the older you get, the higher your premium rate will be when you purchase a new policy (why does life insurance cost more when you get older?).
Insurers may give you a discounted rate for renewing a policy with them or maintaining coverage over a certain period of time.
Cost concerns as we get older are one of the main factors that influence people to purchase a whole life insurance policy, in which you pay a fixed amount throughout the life of the policy (you cannot be non-renewed and the policy builds cash value over time that can be borrowed against).
The arguments for both sides can be compelling (and heated). But at the end of the day, there is no denying that term life insurance is the cheapest way to get high limit life insurance.