What is term life insurance?

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Asked July 6, 2010

1 Answer

There are two basics types of life insurance: Term Life, and Whole (or Permanent) Life. Term life is usually applied to specific types of needs and may expire without being paid, while whole life is expected to exist throughout the insured's lifetime with a guaranteed payout. Whole Life policies also have varying levels of policyholder participation that Term Life does not, allowing the policyholder to borrow against a Whole Life policy, or giving them control over how the premiums paid on the policy are invested.

Whole Life insurance is usually more expensive than a Term Life policy. This is because a Term Life policy may expire without a pay out, but a Whole Life policy will not. Term policies are issued for a specific length of time, ranging from 6 months to 20 years or more. If the insured person dies during the term of the policy, the face value of the account is paid to the policyholder's beneficiaries. If the term is reached before the insured person dies, the policy defaults and the insurance does not pay anything.

Some Term Life policies can be extended after they reach term, but it is usually very expensive to do so. Statistically, the insurance company is much more likely to have a payout on a term policy that has been renewed, simply because the policy has already gone to term once without a payout. If you are considering extending a Term Life policy, look closely at the costs. You should also speak with your insurance company and ask if they have a conversion procedure that can change your Term policy into a Whole life policy and avoid the additional costs of the Term Life renewal.

Term life policies are most often used to cover outstanding debt if the insured dies during the term of the policy. A home mortgage, paying off the family vehicle, or making sure that your children will have the opportunity to attend college are common uses for Term Life policies. By contrast, a Whole Life policy is typically used to provide for final expenses or to make sure that a sum is left behind to support your family if you are not able to be there yourself.

Answered July 6, 2010 by Anonymous

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