Understanding the Term Life Insurance Policy

Term life insurance quotes are often easier to comprehend than other kinds of insurance quotes. Term insurance is commonly referred to as "pure insurance" because this type of life insurance has a set coverage period and benefit amount with no associated cash value for the policy. When the policy period expires, the policy owner can elect to renew the policy or let the coverage end.

Although term insurance as a concept is fairly straightforward, understanding the policy is critical in determining whether this type of life insurance fits a potential purchaser's financial obligations and needs.

The most important components any type of insurance are the premiums, length of term, and face value. The premium for a this type of policy varies and is contingent on a number of factors, including the length of the term. A longer term will result in more premium payments. Also, the policy's face value , or the cash value paid to the policyholder's named beneficiaries, directly impacts the premium. A greater cash value will result in a higher premium payment.

With a term life insurance policy, if the policyholder dies during the term period, the policyholder's designated beneficiaries will receive the term policy amount. For example, a policyholder with a 20-year term policy with a face value of $500,000 would pay $500,000 to the holder's beneficiaries provided the holder dies during the 20-year term. If the holder dies after the 20-year term, the beneficiaries will receive no benefit.

Generally, term insurance is a low-cost alternative to another popular form of life insurance, known as permanent life insurance . It has neither a cash value nor a policy loan provision, which are features commonly found in permanent life insurance products. However, there are several products that do offer policyholders with the option of converting their term insurance to permanent life insurance.

Besides its affordability, term insurance also may be used to help cover large financial obligations, such as a mortgage or college tuition. A potential purchaser with these types of obligations can purchase a term policy with a face value that covers the costs of these obligations so that upon the policyholder's death, they will be paid.

Understanding term life insurance policies is important for any potential purchaser so that he or she obtains the proper amount of coverage at an affordable rate.

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