Many people understand how whole life insurance or universal life insurance works, but fewer may be aware of what is term life insurance. Term life insurance is an agreement between you and an insurance provider that they will insure you for a certain period of time, called the term limit, in exchange for a monthly premium. Term life insurance premiums are typically lower than whole life or universal life policies, since many people may outlive the coverage period. But term life insurance is far more than this. What is term life insurance? It is a policy that helps protect the financial future of your beneficiaries in the event of your passing. Expenses like bills, loans, and your mortgage will be helped paid for in case you’re no longer around to pay them off.
It may not be difficult to understand how term life insurance works since the policy is similar to other policies you might already have. Automobile insurers pay the value of your car if you file a claim. Similarly, term life insurers may pay the value of your policy when your beneficiary files a claim. In both cases, you pay a fee for the coverage which the insurance company collects from many policyholders in order to help pay policy claims.
To understand how life insurance policies work, it might be important to understand the common policy terms that you may negotiate with your insurance company. There are three main components to a term life insurance policy: the term, policy value, and premium. The first, the term, is the length of time for which you are insured. It may vary from 1 to 30 years, but typically 10 or 20 year terms could be the norm. The goal of term life insurance is to help provide a safety net while you pay off a mortgage, save for retirement, or support your dependents. Therefore,you should typically request a term limit that exceeds all of these important milestones. The second policy term to understand is the value of your policy. This is the amount that will be paid to your named beneficiary. The third policy term, the premium, is the monthly (or annual) payment to the insurance company to help keep your life insurance policy in good standing.