Before we can define a Term Life Insurance definition, it's good to know what the basic meaning of life insurance. This definition is taken from Webster Dictionary Online.
Main Entry: life insurance
: insurance providing for payment of a stipulated sum to a designated beneficiary upon death of the insured.
Our Definition of Life Insurance : You pay for insurance so that you'll receve a set amount of cash when the insured dies.
Term life insurance Definition
From Wikipedia, the free encyclopedia:
Term life insurance is a type of life insurance that is temporary, as it covers only a specific period of time, the relevant term. It can be considered pure insurance because it builds no cash value. This is in contrast to permanent life insurance such as whole life, universal life, and variable universal life.
Term life insurance is the cheapest way, in the short run, to buy a given amount of insurance death benefit on a coverage per premium dollar basis.
What is Term Life Insurance and how does it work?
Term Life Insurance can be described with an analogy to permanent life insurance. It is like comparing leasing a car to purchasing a new one. Buying term life insurance would be like leasing a car and purchasing permanent life insurance would be like buying a new one.
Anytime when you lease a car or a home, you don't build any cash value. There is no cash value in Term life insurance policies. Term life insurance is also often described as "pure insurance protection" and does not have the cash value features inherent in whole life, universal life and variable life insurance policies.
Moreover, Term life Insurance pays the death benefit to the beneficiary upon the death of the insured. Term insurance is a cost effective way to get the life insurance coverage you need, it provides guaranteed level premiums (e.g. set monthly payments) and a specified amount of coverage for a specific period of time - as short as 1 year, or in duration's of 5, 10, 15, 20, 25 or even 30 years.
Even though you may deduce that purchasing would be better than leasing, when it comes to life insurance there isn’t one that is better than the other. Finding the right life insurance depends on your needs and plans for what you want the insurance to provide for. For many individuals having a combination of term life insurance and permanant life insuraunce makes the most sense.
Is Term Life Insurance Right for me?
Term life insurance provides no cash build up it is designed to simply create a targeted amount of survivor capital during a guaranteed period of time at the lowest possible guaranteed outlay during the time the protection will be needed. Here are some realistic goals that others use for term life insurance:
- Inexpensive premiums
- Little if any contractual provisions that are different between each company’s policy.
- Simple and understandable policies, premiums, etc.
- Death benefits and premiums guaranteed for the entire period for which protection will be needed.
- Buying the full amount of coverage needed to meet realistic family security goals.
- The lowest possible current out of pocket outlay to maintain coverage.
What do others use the death benefits of Term Life Insurance for?
- Create a guaranteed lump sum of capital to provide income.
- Provide a protection fund for college educations for children.
- Make a specific cash bequest.
- Paying off mortgages in full.
- Create a sinking fund for future payments.
- Protect loved ones from other debt (Credit card payments, loans, etc.).
How long should the guaranteed premium and term life period be?
Deciding which guaranteed term duration you should buy - 5 years, 10 years, 20 years, 30 years, or whichever specified term, requires a thorough review of your debts, financial needs, dependents' needs, important expenses, when and if any of these might change over time. The buyer needs to decide how long a term life insurance policy needs to be in force with a guaranteed premium so that the appropriate funds would be available to meet financial needs such as:
- The amount that would be needed to replace all or a portion of your income for a given period of time.
- How long child care might be needed.
- The time or payments remaining on existing short-term and long-term debts and mortgages.
- The duration of Children's and/or spouse's education expenses.
- The amount of other important and consistent expenses.
- How long you might have obligations or caregiver commitments to parents or elderly relatives.
However, term life insurance costs increase with age and will in most cases jump quite dramatically if continued at the end of your initial guaranteed term life insurance period, it is probably smart to select a generous guaranteed term period. Should your needs decline prior to the end of the guarantee period you selected, the policy can be terminated early or the face amount (and premium) reduced prior to the end of the original guarantee period. Overall, Term life insurance is a great low cost option for a set amount of time.
Term Life Insurance Definition content suggests only common consumer applications. Thanks for visiting Term Life Insurance Definition.