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Term Life Insurance 101

Updated: July 2018

When you're shopping for life insurance, you can choose from two basic types of policies: term life insurance or permanent life insurance. Term life insurance policies offer coverage for a specified amount of time, typically anywhere from one to 30 years. Term life insurance offers a death benefit, which is intended to help your beneficiaries replace your income if you pass away. For example, the money can be used to help pay for things like a mortgage, education costs or everyday expenses, such as groceries.

If you're considering buying a term life policy, here's a brief primer on its essential characteristics and benefits.

Video Transcript

Term life insurance

Of all the different types of life insurance, Term life insurance is the simplest and typically the most affordable.

It's designed to help ease financial burdens on your loved ones and help them cover everything from groceries…

… to the mortgage.

It's called Term life insurance because it lasts a set amount of time.

You choose a policy in set increments.

You also get to choose how much coverage you need.

And when you buy Term life insurance, the cost remains the same for the entire term period, so it's really budget friendly.

Most term policies will also let you convert to a permanent policy that may last your entire life without going through additional medical exams.

So, there you have it, Term life insurance


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How Does Term Life Insurance Work?

If you pass away while your term life insurance policy is in force, your beneficiary will receive the death benefit. If you do not pass away during the term, no one will receive the death benefit. And premiums you pay are typically nonrefundable, unless you bought a term policy with a "return of premium" option.

What Happens When the Term Ends?

If your term policy is renewable, you may be able to extend your coverage for another term, up to a specified age. If your term policy is convertible, you may be able to convert it to a permanent life policy. Check with your agent for details on convertible policies, as the conversion typically has to happen within a specified time period.

When your term ends, you'll likely pay higher premiums (or regular payments) if you renew or purchase a new policy, says the Insurance Information Institute (III).

How Much Does Term Life Insurance Cost?

The cost of a term life insurance policy is based largely on the insured person's health and age at the beginning of the term, says the III. Declining health or increasing age can make it difficult or more expensive to acquire a new term policy as you get older.

Additional Options for a Term Life Insurance Policy

Term life insurance policies may be classified as either level or decreasing term, according to the III. Level term policies, in which the death benefit does not decrease, are the more common form of term life insurance, the III says. Decreasing term life insurance policies typically see the death benefit decrease at specific intervals during the course of the term.

Some term policies allow for an increase in your premiums during your existing term. To avoid any surprises down the road, read your policy carefully and ask your agent questions up front.

Finally, some term policies offer a return of premium option that entitles you to have some or all of your premiums refunded at the end of the term, assuming you have made no claims on the policy, says the III. It's worth noting, however, that such policy premiums tend to be significantly more expensive than non-refundable premium options.

Buying life insurance is a step toward helping to ensure your family's financial future. Consult with your insurance agent to determine whether term life insurance meets your needs.

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This content is for informational purposes only and may not be applicable to all situations.

This life insurance information is provided for general consumer educational purposes and is not intended to provide legal, tax or investment advice. Allstate life insurance issued by Direct General Life Insurance Co., 911 Chestnut Street, Orangeburg SC 29115; Allstate Life Ins. Co. & Allstate Assurance Co., 3075 Sanders Rd, Northbrook IL 60062; American Heritage Life Ins. Co., 1776 American Heritage Life Dr., Jacksonville FL 32224. In New York, life insurance issued through Allstate Life Insurance Company of New York, Hauppauge NY. Life insurance also offered and issued by third party companies not affiliated with Allstate. Each company is solely responsible for the financial obligations accruing under the products it issues. Product guarantees are backed by the financial strength and claims-paying ability of the issuing company.

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