Term Life Insurance


Term Life Insurance definition:

Life Insurance that provides coverage for a specified period, such as ten or twenty years, with no cash value.

According to IRMI,

A policy that gives protection for only a definite period of time (e.g., 1, 3, or 5 years). If death occurs during the term for which the policy is written, proceeds are payable to the beneficiary. If the insured survives the term, the policy expires. There is no cash value build-up in a term policy. Guaranteed renewable term insurance can be renewed without proof of insurability. Under other types of term insurance, the insured must once again undergo an underwriting process (e.g., a medical examination).


Thoughts:

Term life Insurance has a defined time period, death benefit, there is no investment or savings component, it has low costs.  There is no flexibility around the premium or investment options to select.   If the individual that is insured dies during the policy term, the policy value is paid to the surviving beneficiary.

Consider a household with two working parents and one child.  Each salary is necessary to pay bills, maintain the family’s lifestyle, and to provide for the child or children.  Should one parent die, life insurance will serve as a tool to replace the income of the parent.  Originally it was thought that life insurance is necessary until the children complete college, but the recent economic recession has caused some issues with this assumption.  Data suggests there is an increasing trend of graduates returning to live with their parents after college, although the parents don’t have the same pressure to provide for their children between infancy and post college, if a child returns to the house post college – the outstanding mortgage payment would one reason to retain the life insurance policy.

Term life insurance is often a low cost way to obtain life insurance to protect income during the times most critical.   Premiums are based upon the insurance companies mortality rates and will increase as you get older.  Term policies are renewable so that you can carry insurance passed the fixed years, however typically not renewable above a certain age.

 

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