What does term insurance mean?

Term insurance provides coverage for a set period (the "term"), with the payout being made to beneficiaries upon the insured person's death within that term. If the insured outlives the term period, the policy ends.

Here's a breakdown of what term insurance means:

1. Coverage Period (Term): Term life insurance policies have a specific coverage period, usually ranging from 10 to 30 years. During this term, the policy remains active, providing life coverage for the insured person. If the insured person passes away during the active term, the death benefit is paid out to the designated beneficiaries.

2. Death Benefit: If the insured person dies within the term period, the insurance company pays the predefined death benefit to the beneficiaries. The death benefit is usually fixed or level throughout the term, unless the policy has additional features such as a return of premium option.

3. Term Expiration: Once the policy term ends, the coverage ceases. If the insured person is still alive at the end of the term, the policy lapses, and no benefits are paid. However, some policies may offer renewal options or conversion to permanent life insurance plans.

4. Premiums: Term life insurance premiums are typically lower compared to permanent life insurance policies. Premiums remain fixed during the term unless the policyholder chooses to extend the coverage or add riders. Premiums may increase if the policy is renewed after the initial term expires.

5. No Cash Value: Term life insurance policies generally do not accumulate cash value. The primary purpose is to provide pure death coverage, making them a cost-effective option for individuals who need temporary or short-term coverage.

Term insurance is designed for individuals who seek financial protection for their loved ones in case of unexpected death during a specific period, such as while raising a family, paying off a mortgage, or covering personal debts. It offers affordable coverage without the additional saving component associated with permanent life insurance.