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Term Life Insurance: What it is and How it Works
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Term life insurance is a relatively inexpensive way to provide money for your family if you die.
Imagine a world without yourself in it. Would your family need help paying the bills? Term life insurance can help you bridge that gap at a relatively low cost. If you die while the policy is in force, you’ll leave behind a lump sum of cash for whomever you choose.
Because term life insurance doesn’t last forever and has no cash value, it’s typically much cheaper than whole life insurance.
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What is term life insurance?
Term life insurance offers temporary coverage for a specific period of time, such as 10, 20 or 30 years. As long as you keep up with your premium payments, your insurer will pay a sum of money to your life insurance beneficiaries if you die during the term.
Unlike whole life and other types of permanent life insurance that may last your entire life, term life insurance coverage typically expires when the term ends. This means that if you outlive your policy, your beneficiaries won't receive any money. If you still need life insurance, you may be able to renew your policy, convert it to permanent coverage at a higher premium or buy another policy.
Term life doesn’t build cash value that you can borrow against, like permanent life insurance does. This is one reason term life is cheaper than whole life. Term life purely provides insurance, and with whole life, you're paying for longer coverage and the ability to grow the policy's cash value.
Unlike whole life and other types of permanent life insurance that may last your entire life, term life insurance coverage typically expires when the term ends. This means that if you outlive your policy, your beneficiaries won't receive any money. If you still need life insurance, you may be able to renew your policy, convert it to permanent coverage at a higher premium or buy another policy.
Term life doesn’t build cash value that you can borrow against, like permanent life insurance does. This is one reason term life is cheaper than whole life. Term life purely provides insurance, and with whole life, you're paying for longer coverage and the ability to grow the policy's cash value.
Do you need term life insurance?
Term life insurance is sufficient for most people who are in the market for coverage. Consider term life insurance if:
People — like a spouse or child — depend on you financially.
Your death would be a financial burden to others.
You have debt that will be paid off after a number of years, such as a mortgage.
You’re a stay-at-home parent and your family would have to pay someone to handle household tasks and other services if you die.