Term life insurance is a type of life insurance policy that lasts for a predetermined number of years. If the insured passes away within the policy term, the beneficiaries receive the policy’s death benefit. However, if the policy expires, the beneficiaries will not receive a death benefit.
Types of Term Life Insurance Policies
|Type of Policy||Description|
|Standard term life insurance||An affordable option that provides basic coverage for a set number of years|
|Return-of-premium term life insurance||A more expensive option that returns paid premiums if the insured does not pass away within the policy term|
|Convertible term life insurance||An option that allows the policy to be converted into a permanent life insurance policy before the term expires|
|Renewable term life insurance||An option that allows the policy to be renewed at the end of the term without a new medical exam|
Limitations of Term Life Insurance Policies
Term life insurance policies do not include a cash value account and only remain in effect for a certain period of time. Policyholders can outlive their policies, and there is a chance that the death benefit will never be paid out. Additionally, term life insurance policies may not cover certain events such as critical illnesses.
Riders for Term Life Insurance Policies
Policyholders can add riders to cover some of the gaps in coverage in a term life insurance policy. Here are three riders that are available for term life insurance:
|Critical illness rider||Provides a lump sum payment if the insured is diagnosed with a critical illness|
|Accidental death and dismemberment rider||Provides an additional death benefit if the insured dies in an accident or loses a limb|
|Waiver of premium rider||Waives premium payments if the insured becomes disabled and cannot work|
Determining Coverage Needs
When determining how much term life insurance is needed, it is important to consider financial goals and specific situations. A life insurance calculator or consultation with a certified financial planner can be helpful in determining coverage needs.
Overall, term life insurance policies pay out if the insured passes away within the policy term. Different types of term policies and riders are available to customize coverage. It is important to consider coverage needs and limitations when shopping for term life insurance.
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- IRMi. What Is Level Term Life Insurance? - Money
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- Insuranceopedia. What Is Term Life Insurance And How Does It Work?
- Sproutt. Term Life Insurance And Death Probability - Khan Academy