A term life insurance plan is one with a limited coverage period. When purchasing this type of plan, a policyholder typically chooses a set period of time (or term) that they want to be covered for and commits to paying a premium for that period. If you decide to purchase a 10-year term life insurance plan, you will be given the choice to renew your coverage at the end of 10 years, or you can let the coverage end. This is the most basic type of life insurance and is often the preferred option as it is low-cost and easy for most people to understand.
The most important thing to remember about this policy is that it has no additional cash value, and will only be paid out upon the policyholder’s death. If the policyholder dies before the end of the term, there is a payout under term life insurance, but if they die after, their beneficiaries get nothing at all. Because of this trait, it is life insurance in its purest form – it only exists to insure people against loss of life, and all premiums paid are used to cover this cost.
Premiums are based upon an applicant’s age, health, and life expectancy and can vary between different insurers. This explains the common wisdom of purchasing life insurance when one is young, as premiums are often lower and one is allowed a longer term at a fixed rate. If a policyholder wishes to renew their policy at age 40, it would cost more than if they had bought a 30-year term at age 25.
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