Life insurance is one of the most important types of financial products available for protecting families from financial hardship. Life insurance policies give financial compensation to the beneficiaries of the policyholder if he happens to die. The death of a breadwinner or caregiver can result in great financial hardship for a family; life insurance is a way to mitigate the hardship caused by death.
Basics
Term life insurance is a type of life insurance that lasts for a predetermined duration or term. For instance, if a 30-year-old worker buys a 20-year term life insurance policy, the worker's beneficiaries would receive money if the worker died before age 50. Term life insurance is an alternative to permanent life insurance policies, which last until the time of death. Term policies can come in many different durations, such as five-year, 10-year, 20-year and 30-year policies.
Benefits
Term life insurance offers several notable benefits. According to State Farm, term life insurance was developed to provide temporary life insurance benefits on a limited budget. The cost of term life insurance may be lower than permanent insurance, since there is no guarantee that the policyholder will receive a benefit. After an agreement is signed, the insurance company cannot end your coverage if you continue to make your premium payments on time.
Drawbacks
Term life insurance has a few drawbacks with respect to other life insurance options. If you do not die during the term of the policy, your beneficiaries will not receive any compensation from the policy. The cost of the premiums may change over time depending on the terms of the insurance contract. In addition, if you reach the end of a term life insurance policy, it may be costly to get a new policy.
Considerations
Term life insurance offers a way for consumers to apply life insurance coverage to the most productive years of life. If a worker dies in her 30s or 40s, she will have missed out on many years of potential income. Older workers are more likely to have grown children and substantial savings, as well as fewer years of work ahead of them so they may not want to pay for life insurance. Term life insurance lets consumers choose which years of life they want to protect with insurance coverage instead of committing to a permanent plan.
