Understanding the Basics of Term-Life Insurance

Purchasing Life Insurance provides assurance that your family will remain financially stable in case you happen to die. Term Life Insurance is a simple and financially sound strategy for taking care of your loved ones in case you die.

Here is a breakdown of Term Life Insurance. First, let's learn the lingo.

Term - Term simply means a set amount of time, in years.
Premium - A payment made to the insurance company for coverage.
Face Amount - The face amount is the money that would be paid out in case of death.
Beneficiaries - The people who will receive insurance money in case of death.
Policyholder - The person owning life insurance
Insurer - The company responsible for payout

Term Life Insurance is very simple.

1. If the policyholder DIES before the term is up, the beneficiaries receive payment equal to the face value.

2. If the policyholder DOES NOT DIE, the insurer keeps the premium and the policyholder gets nothing.

3. The policyholder may choose to renew coverage at the end of term, this may change the premium paid.

Some common questions:

What determines how much the premium is?

Premiums are determined by the chance that the policyholder will die during that term. For instance, people who smoke and work on Alaskan Crab Fishing Boats have a HIGHER RISK OF DEATH. People who exercise and work in libraries have a LOWER RISK OF DEATH.

What is Guaranteed Level Term Life Insurance?

Guaranteed Level Term Life Insurance makes the premium stay the same for a given number of years.

What is Return of Premium?

Return of Premium is a payout of a lump sum if the policy holder is still alive at the end of the term. Return of Premium insurance is typically higher because the policyholder is paid back.

Hopefully this information has provided a simple insight into the way that term life insurance works. Let's hope you won't have to use it very soon!