Term life insurance is a policy that offers coverage for a specified period of time, the term, and should you pass away during that term, a payout is made to the policy’s beneficiary.
The benefit of Term life insurance policies is that they can be structured to fit your financial situation, as you can customize several features of the policy:
Value of the death benefit: Typically available in increments of $50,000, and can go as high as $10 million, depending on your insurer.
Term length: Policies can often last for 1, 5, 10, 15, 20, 25 or 30 years.Level or decreasing death benefit: Level term policies maintain the same payout for the life of the policy. Decreasing term policies pay less money over time.
Whether the policy is renewable: If you renew a policy at the end of the term, the premium will increase as you’re older, but you don’t need to re-qualify for coverage.
Riders: These are policy add-ons that typically will increase your premium, but offer additional ways to tailor the coverage to your needs.
That each of these features of a policy is customizable means that term life insurance can be applicable to a wide range of financial scenarios. For example, a new parent that primarily wants to make sure their child will be able to afford college may choose to go with a 20 year level term policy with $200,000 in coverage (as the all-in cost for students to attend a four-year nonprofit college is about $50,000 per year). On the other hand, if you’ve just purchased a home with your spouse, you might consider a decreasing term policy (since your mortgage balance decreases over time as you pay it off) with a death benefit equal to the size of your outstanding loan.
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