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What is Term Life Insurance?

By: John Sense

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Life insurance is something that many people are interested in. Most would like their families to be cared for should the worst happen that bills like mortgages would be met and their loved ones wouldn't suffer financially.

But there are a number of different types of life insurance, some with big, some will small differences, which means that it can be difficult to choose. Which is why many people turn to experts and one of the most regularly advised life insurance types is that of term life insurance. But like many financial terms most people don't understand what term life insurance is.

What is Term Life Insurance?

Term life insurance is, as you might think from it's name, an insurance policy for someone's life that will cover for a defined period of time. rather different to other policies, like whole life or variable life, term life insurance is only for a defined period, often small, during which a person is covered after that the policy expires and they need to arrange another one.

The advantage of this is that payments are, to begin with at the very least, small. For the young especially this can mean cheap monthly payments rather than other life insurance policies because of how they work.

The other types of life insurance build up a money sum, which can be reclaimed, borrowed against and built up to a large sum as opposed to term life insurance where the premiums are simply paid to the company and kept by them and then, if you are covered when you pass away, the payment is given out to the people designated in the insurance policy.

But when the policy expires there is no money to claim back, and that is why life insurance is cheaper. The money doesn't get invested in their name it is, like most other insurance policies, a bet against the person dying or not. That may sound cold hearted but almost all insurance policies are, when you boil it down, are much the same thing.

Which cuts costs, and because there is no money to claim back it also stops having to pay cash into a cash pool. The major difference in payments out by you is that whilst you will have a set amount a month to pay for the rest of your life with a whole life insurance your premiums with term life insurance will change upon each renewal of a policy usually upwards.

They have to consider what the likelihood of you dying whilst you have the policy is. For example a healthy young man would not have to pay much by way of premiums, because they are rather unlikely to die. By contrast a 70 year old man would expect to pay a lot, simply because of the odds.

Many advisor's believe that term life insurance is the right sort of policy for most people. The reason for this is that the money saved by having having to pay out less each month to begin with is able to be invested in other things investments that later in life will pay off more handsomely than a whole life or variable life insurance policy would.

Article Source: http://depositarticles.com/

Term life insurance - what is it? we go into more detail at eFinanced - fresh source of financial information

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