What Is Term Life Insurance

Term life insurance pays out a predetermined amount to the beneficiary of the policy holder in case of their death. It serves to protect the loved ones who are dependent on the policy holder to pay the day to day expenses, as well as take care of any debts. An insurance policy can be taken out at pretty much any point in the life of an individual and likewise, may be stopped at any time, too. The policy is in force during the time period in which the premiums are being paid and lapses once the payment of premiums ceases. There is a large variety of coverages possible.

Depending on the type of policy, it is possible to get income benefit, education benefit, the policy may be index linked or not, and the policy may be changed into an endowment if one chooses, and its value may be increased (an increasing term life assurance policy) to keep up with inflation. Another factor worth noting is the coverage for critical illness and typical age related issues like hearing, heart attack, stroke, Alzheimer’s etc. Many insurance companies will cover the worst possible medical issues.

Term life insurance is the cheapest type of insurance coverage one can buy while providing all the benefits. The term may be set according to individual needs. For example, some people prefer to only insure themselves as long as their children are dependent on them or while they have a mortgage to pay.

To decide how much coverage is needed so the family is taken care of in the event that the main earner is no longer there, many factors have to be considered. If one is getting term life assurance so outstanding debts can be paid off, then the amount of coverage should be enough to take care all of the outstanding debts. Decreasing term policies do just this - their coverage and cost decrease as more of the mortgage is paid off. If one is in search of a policy that will also provide for the family in case of death then things like debt size, current income, family needs and what one can afford all have to be taken into account.

If the family is totally dependent on the income of the policy holder, then enough coverage should be purchased so that all secured debts, inclusive of mortgage, can be paid off. If the mortgage is not paid off, the family could stand to lose the home as the mortgage is secured against the house. Lenders have the right to sell the house to recover their losses. Making sure that the family has a roof over their heads is of the utmost importance, in case one not there for them.

Once the debt issue is resolved, then consider if the family can survive without the main earner’s income. If this is not the case, then a term life assurance will be needed which pays out a lump-sum amount. The exact amount of cover will depend on the current earnings, age of dependents, and if there are any other savings or investments available to the family. Once all these assessments have been made, one can come up with a reasonable amount of coverage that will be sufficient for the family to get by on. Besides this, another important factor that is equally important to take note of is how much coverage one can realistically afford. While everyone would like to provide the maximum coverage for their families, it is not always possible as they can’t afford it. Needless to say, the greater the amount of coverage one buys, the higher the premiums that will have to be paid each month. Over-insuring a family’s future at the expense of existing needs is not useful.

The duration of the life insurance term one chooses to adopt is dependent upon the age of the main earner and dependents. Generally, people get coverage until they retire, or up to the point when children leave home or are themselves employed full time. Life insurance is a form of substitute income - simply decide how long that substitute is necessary and use it as a guide for the length of the insurance term.