Term life insurance is the simplest and usually least expensive form of life insurance. Its name is derived from the fact that each policy lasts for a specified term (in most cases, from five to 30 years). Unlike other forms of life insurance, term life insurance’s primary use is to provide coverage of financial responsibilities for the policyholder’s beneficiary(ies) in case of the policyholder’s death during the term.
When deciding on the term, a prospective buyer should take into account how many years his or her beneficiary(ies) will be financially dependent on him or her. If the policyholder dies within the term, his or her beneficiary(ies) will receive the stated death benefit (the monetary value) of the policy. If the policyholder dies during the term, the benefit will remain the same no matter when in the term the policyholder’s death occurs.
Premiums (payments) for term life insurance are set at a fixed rate for the term; what the policyholder pays the first month of the term will be the same amount that he or she will pay the last month of the term. However, after the expiration of a term, if the policyholder wants to buy another term, the premiums are no longer guaranteed at the rate paid for the previous term.