Definition of Term Life
Term life is one of several different types of life insurance products designed to protect against the financial loss that may occur after a person's death.
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Definition
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Term life is a type of life insurance policy purchased for a specified period of time.
Features
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Term life insurance is purchased for a specific period of time (term) at a specific cost (the premium) for a specific dollar amount or value (death benefit). The named insured is the person whose life is being insured by the policy. The policy states who will receive payment (the amount of the death benefit) from the insurance company if the named insured dies during the term of the insurance policy. That person is called the beneficiary. With term life insurance, as long as the premium is paid on time, if the person insured by the policy dies during that time frame, the insurance company will pay the beneficiary the amount of the death benefit.
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Function
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Term life insurance is purchased to provide income or funds the beneficiary can use following the death of the named insured. Most often these funds will pay for the funeral and burial of the named insured, pay off the named insured's debts, and any additional funds will be used to provide for the care and maintenance of a surviving spouse or children.
Benefits
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Term life insurance is usually less expensive than other life insurance products or policies, especially at the beginning
Disadvantages
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A term life insurance policy has no cash value and the annual premiums will increase over time as the named insured ages or experiences health problems.
Types
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There are several different types of term life insurance policies: renewable, re-entry, level and decreasing. A renewable term life insurance policy automatically renews annually with premium adjustments for the insured being another year older. A re-entry policy usually requires the insured to get a medical examination at a certain checkpoint to verify continued insurability. A level policy means the annual cost of the insurance is guaranteed to stay the same for a specified number of years, while a decreasing policy means the premium remains the same, but the death benefit gradually goes down over time.
Cautions
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People who have been diagnosed with a terminal illness may not be able to purchase life insurance, as they may be deemed "uninsurable" since death is considered imminent. Others with chronic illnesses or health conditions, or high-risk hobbies or jobs may find it difficult and/or more expensive to purchase life insurance.
Many insurance policies have specified exclusions, which means they will not pay out the death benefit under certain conditions. For instance, many insurance policies will not pay if the named insured commits suicide.
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