Term Life Insurance Basics

If you're unsure about term life insurance, you need to learn a few of the basics. For instance, most people buy term life insurance to replace income that would be lost if a wage earner passed away. Term life insurance proceeds are tax-free, and can play a role in estate planning, cash accumulation, retirement funding, and the transfer of wealth to beneficiaries. And a basic term life insurance policy is one of the most affordable policies on the market today.

The cost of a term life insurance policy and the basic features it offers can vary tremendously depending on the type of policy you choose. Here are a few term life insurance basics.

Term Life Insurance Basics

Term life insurance covers you for a period of time you select (for example, 10 or 20 years) and pays benefits only if you die during the time you're covered. Term life insurance is a basic and simple form of life insurance, and is often referred to as temporary insurance. Basic term life insurance policies do not accumulate cash value, which means if you do not die within the time you're covered, your estate does not collect any money from the policy when it ends.

Benefits of a Basic Term Life Insurance Policy

Term life insurance typically costs less than other forms of life insurance. Proceeds are not taxable to your beneficiaries. They supplement employer-sponsored life plans, or older policies that may be inadequate due to inflation. While in effect, you can typically convert a basic term life insurance policy to a permanent policy without evidence of insurability (that's an official statement proving you're an insurable risk).You can buy a large amount of term insurance to complement your permanent policy.

How Much Life Insurance Coverage do You Need?

Your life insurance needs may vary depending on your particular stage in life. This means that an unmarried person who doesn't own a home may not need as much life insurance as someone who is married with children. As none of us want to leave financial trouble for our loved ones, you should ask yourself what you need to make sure your dependents can continue to live the lifestyle to which they are accustomed.

If you're looking for more term life insurance basics and helpful resources, check out our Term Life Insurance Learning Center.