Term Life Insurance

Term life insurance is a policy that is paid to the survivors, or beneficiaries, of the policy holder upon his or her death. It is referred to as a term policy because it is written for a specified time period, generally one, five, 10 or 20 years. When the policy expires, the holder has the option of renewing it again for the same duration or a new term.

One of the benefits of a term policy is that the monthly premium remains the same throughout its durations. However, the price may increase after a renewal. Some states have laws which require insurance companies to offer automatic renewal, meaning the holders of the term policy do not have to undergo a medical exam in order to be eligible for coverage.

Benefits Paid by a Term Life Insurance Policy

When the policy holder passes away, money is sent to the person or persons listed as beneficiaries. Many families count on the money from a life insurance policy to be available to pay for funeral and burial costs, which can approach $10,000 in some cases. The benefactor may also use the money from the insurance payout to replace lost incomes in the event the deceased was working at the time of his or her death and had not yet reached the age of qualifying for retirement benefits.

How to Determine How Much Term Life Insurance to Purchase

Typical advice given to people who are purchasing term life insurance for the first time is to obtain a policy that has the value which is approximately eight to 10 times the value of the applican't annual salary. A person who contributes all or a great portion of the income for his or her household is usually advised to buy insurance protection adequate enough to sustain the family in case of his or her sudden death.

Another way to determine how much insurance coverage to purchase is for the policy holder to first make a list of household income and expenses. With that information in mind, the applicant should factor in inflation for the next several years to determine how much replacement income would be needed to maintain the status quo. If a married couple is applying for term coverage, they should run this scenario twice to determine a figure for replacing each income.