Decide If Term Life Insurance Meets Financial Needs

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One of the most common types of insurance offered by companies is term life insurance, often called pure insurance. With this type of coverage a persons buys a policy for a specified monthly premium with the insurance available for a set time, or term, and usually only pays out upon the death of the insured and accumulates no cash value. At the end of the term life insurance policy's life, the insurance is no longer in force unless there is an agreement in which the policy life can be renewed, typically on an annual basis.

With term life insurance, the insured is not always the same as the policy owner. For example, if a man buys term life insurance on his own life, he is both the policy owner and the insured. If he buys insurance for his spouse or children, he is the policy owner, but those covered on the policy are the insured.

Typically, renewable term life insurance will include an agreement that states the renewable policy premiums for the future, often locking in the price until the policy either pays out upon the insured's death or the policy is cancelled by failure to pay the required premiums. Additionally, the payout amount generally remains the same regardless of how long the insured is covered by the term life insurance policy.

Verify Stipulations In Policy Before Signing

In some instances, a term life insurance policy will decrease in value over the life of the policy. For example, a home buyer may take out a term life insurance policy to cover the cost of their home mortgage in event of their death. As the amount due on the mortgage principal declines, the amount paid out in event of death also declines. In some instances, the premium cost may also drop accordingly.

Young families often take out what is commonly called whole life insurance, which not only provides death benefit coverage but also accumulates cash value. The policy owner can receive loans from the accrued benefits of this type of policy or, if they prefer, can cash the policy out based on the amount of money paid over the life of the policy. Unlike term life insurance, whole life policies only expire when premiums are allowed to lapse.

There are numerous laws and regulations that control how term life insurance and whole life is handled by insurance carriers. Essentially, once an insured is approved for a policy and maintains the agreed upon payments, the policy cannot be cancelled.
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