Term Life Insurance: A Simple Definition
Term life insurance is a type of life insurance that provides coverage for a specific period, or "term." It's designed to provide a death benefit to your beneficiaries if you die within the term of the policy.
Here's a breakdown:
* Temporary coverage: Unlike permanent life insurance, term life insurance only provides coverage for a set period, such as 10, 20, or 30 years.
* Affordable: It is generally more affordable than permanent life insurance because it doesn't build cash value.
* Death benefit: If you die within the policy term, your beneficiaries will receive the death benefit.
* No cash value: Unlike whole life or universal life insurance, term life insurance doesn't accumulate cash value. This means there's no investment component.
In essence, term life insurance is like a temporary safety net designed to protect your loved ones financially in case of your untimely death during the policy term.
Examples:
* A young family might buy a 20-year term life insurance policy to cover the mortgage and other expenses if the primary breadwinner dies unexpectedly.
* A parent with young children might purchase a 10-year term life insurance policy to ensure their children are financially secure in case of their passing.
Key Takeaway: Term life insurance is a cost-effective way to provide financial security for your loved ones for a defined period.