Term life insurance guarantees payment of a stated death benefit if the covered person dies during a specified time period (known as the “term”). When this term expires, you can either renew it for another term, convert the policy to permanent insurance coverage, or simply allow the term life insurance policy to expire.
Terms are usually 10 years, 15 years, 20 years, or 30 years in length.
Example of Permanent Life Insurance
Joe and Sally, who are both 30 years old, want to protect their new family in the unlikely event of early death.
Joe buys a $500,000 20-year term life insurance policy for himself with a premium of $33.30 per month.
Sally also buys a $500,000 20-year term life insurance policy for herself with a premium of $23.40 per month.
How Term Life Insurance Works
If Joe dies within the 10-year term, the policy will pay Joe’s beneficiary $500,000.
Before the 10 years is over, if Joe renews the policy, the premiums will be higher than with his initial policy because they will be based on his age of 40 instead of 30.
There is no benefit when the policy expires.
When you buy a term life insurance policy, the insurance company determines the premiums based on the value of the policy (the payout amount) as well as your age, gender, and health. In some cases, a medical exam may be required. The insurance company may also inquire about your driving record, current medications, smoking status, occupation, hobbies, and family history.
Many term life insurance policies offer the option to convert to permanent life insurance before their term expires.
