All About Term Life Insurance

There are two main types of life insurance: term and "permanent" insurance.

Term can be further subdivided into annually renewable term (also called ART, yearly renewable term, or YRT), and level term insurance.
"Permanent insurance" includes traditional whole life, interest sensitive whole life, universal life, variable universal life, survivorship life (also called second-to-die-life), first-to-die-life (also called joint life)
When you want the most coverage at the lowest cost, term is the way to go. It is cheaper than "permanent" insurance for two reasons:
1. There is no cash value account or other "savings fund" in a term policy. 100% of the premium goes to pay for the benefit plus insurance company expenses.
2. The company guarantees to cover you at a fixed rate, but only for the length of the term you select. At the end of the term you can continue most term policies, but the rates go up dramatically.
The word "term" in term life insurance refers to the fact that you are guaranteed coverage for the specified term as long as you pay the required premium. For example, a 1 year term policy has a rate that is in effect for 1 year at a time. A 10 year level term policy covers you for 10 years with a level benefit and at a premium that does not change for the 10 year term (the company must provide the coverage as long as you pay the premium, but you can cancel any time...just stop paying the premiums).

Term life is most often bought for the following reasons: To replace lost income should the insured individuals die prematurely To provide a lump sum for bill paying...As a way to pay off an outstanding major financial obligation such as a mortgage should an income earner die prematurely To provide a lump sum which will be used to cover anticipated future expenses...As a way to provide for a specific future major expense, such as college education, should an income earner die prematurely To provide business partners with a fund to buy-out a deceased partner's share...Sometimes the deceased partner's spouse or family members are not interested in working in the business. Life insurance can give the partnership a way to fairly and immediately compensate the surviving spouse. TYPICAL OPTIONAL ADD-ON "RIDERS" Availability of these optional, extra cost riders varies from company to company and some of the most common term riders are: Child Rider...insures one or more minor children, usually for one rate, and usually for amounts of $20,000 or less. Accidental Death Rider...provides increased benefits at a relatively low price, should you die due to other than natural or self inflicted causes. Waiver of Premium Rider...If you are disabled, you no longer have to pay the premiums on the life insurance to keep the coverage in effect.