Term life insurance

Term Life Insurance is life insurance  that provides coverage for a specific period, or "term." Common terms might be 10, 20, or 30 years. Unlike other forms of life insurance, such as whole life or universal life, term insurance has no savings or investment component. It’s designed  to pay out a death benefit if the insured person dies during the term.

Affordability

 No Cash Value Build-Up: One of the reasons term life insurance tends to be less expensive than other types of life insurance is because it doesn't accumulate cash value. Policies that build cash value, like whole life insurance, often come with higher premiums because they not only provide a death benefit but also function as a savings or investment vehicle.
 Temporary Coverage: Since term life insurance only covers a specific period, there's a possibility the policy will expire before the policyholder dies. In such cases, the insurance company doesn't have to pay out any death benefits, making it less risky and therefore less expensive.

Because term life insurance is only death insurance, it is used to cover mortgages (guarantee that the bank will receive their money), payment to the families (upon death of insured person his family will usually receive repayment for funeral costs and in some cases will get some money), and repayment of debts.

Term Insurance as Mortgage Protection:
 Matching Term Lengths: When buying term life insurance for mortgage protection, homeowners often choose a term that matches the length of their mortgage. For instance, if you have a 30-year mortgage, you might opt for a 30-year term life insurance policy. This ensures that the insurance will cover the mortgage duration.
 Death Benefit Equals Mortgage Amount: The death benefit (the payout amount if the insured dies) can be set to match the mortgage amount. If the policyholder passes away during the term, the beneficiaries can use the death benefit to pay off the remaining mortgage balance.
 Decreasing Term Option: Some term life insurance policies offer a "decreasing term" feature. In this structure, the death benefit decreases over time, generally in alignment with the decreasing outstanding mortgage balance. This can be a cost-effective option since the coverage reduces as the mortgage is paid down.
 Financial Flexibility: If the insured person passes away and the death benefit is paid out, the beneficiaries can use the funds as they see fit. However, the primary intention of getting the policy might be to ensure the mortgage is covered.

It's essential to regularly review the policy, especially if there are significant changes to the mortgage amount or structure. Refinancing, for instance, might extend the mortgage term, which could necessitate adjustments to the term life policy.

References

Category:Insurance