Term life insurance policies generally have a set expiration date, after which the policy becomes void and the insured person no longer has coverage. Some policies may also have an optional “maturity rider” that allows you to keep your policy active even if it expires after the original term. If you’re thinking about renewing your policy, be sure to ask about the maturity rider and whether it’s applicable to your specific policy.
The premium for a term life insurance policy is paid for a set number of years, and the insurance company keeps paying the policyholder for those years. At the end of the term, the policy expires, and the company has the option of either continuing to renew the policy or letting the policy lapse. If the policyholder dies within the time that the policy is still in effect, the insurance company will pay out the benefit. But if the policyholder dies after the term of the policy has expired, then the insurance company keeps the policyholder’s money and pays itself. This means that a term life insurance policy can be a great asset for the insurance company—but it can also become a liability for the policyholder.
What is a term life insurance policy?
A term life insurance policy is a type of life insurance that provides coverage for a specific period of time, or “term.” The policyholder pays a fixed premium each month, and if he or she dies during the term of the policy, the insurance company pays out a death benefit to the beneficiary. If the policyholder survives the term of the policy, there is no payout.
How does a term life insurance policy work?
A term life insurance policy is a contract between an insurance company and an individual, in which the company agrees to pay a designated beneficiary a sum of money upon the death of the individual. The policy is in effect for a specific period of time, or “term,” and the premiums are fixed for that term. If the insured dies during the term, the beneficiary receives the policy’s death benefit. If the insured survives the term, the policy expires and no benefits are paid.
What are the benefits of a term life insurance policy?
Term life insurance is cheaper than permanent life insurance. But, there are also certain situations when you might need a permanent insurance policy.
Benefits of a term life insurance
- If you’re still a young individual, term life insurance policies are better suited for you.
- Term life insurance gives you a lump sum payment on your death and a monthly benefit for the rest of your life.
- It’s cheap to buy and easy to understand.
- You can renew it every year.
- You don’t have to worry about pre-existing medical conditions.
- You can choose the amount of coverage.
- You can change the beneficiaries at any point in time.
- You can adjust the premium amount based on the age you purchase the policy.
- You can easily convert the term life policy to a permanent one by paying a one-time premium.
- You don’t need to apply for a new policy after changing jobs.
What’s the difference between a term life insurance policy and a permanent life insurance policy?
Term life insurance policy
Term life insurance policies provide a specified period of coverage for a specific sum. These policies are generally cheaper than permanent policies, but they have a shorter life span.
Permanent life insurance policy
These policies are generally more expensive than term life policies. Permanent policies provide protection for your whole life, even if you are not working.
