Term insurance is the most basic and simple form of life insurance that there is. Let me explain how it works.
What is Term Life Insurance?
Most people intuitively understand what life insurance is.
If you die while you have it, then your beneficiary will get a payout.
And that is exactly what term insurance is.
Term insurance is simply life insurance that covers you for a period of time. No more, no less.
For example, you can have a term insurance policy for $100,000 for 20 years.
That means that you will have to pay a premium (the monthly payment) for 20 years to the insurance company. And in exchange, if you were to die within the next 20 years, the person that you designate will get $100,000. If you designate 2 people as beneficiaries they will each get $50,000. If you designate 3 people as beneficiaries they will each get $33,333 and so on.
That is about it. No bells and no whistles.
Term insurance is simply a way to transfer the financial risk of you dying to an insurance company. In exchange, the insurance company gets your monthly premiums.
When the term expires, there is no more insurance. You will owe no more payments. And if you were to die, then there is no benefit that is paid out to your beneficiaries.
Final Thoughts
The biggest benefit of term insurance is that it transfers the financial risk of you dying to the insurance company. That way, if you were to die, then your loved ones will be taken care of.
The second biggest benefit of term insurance is that it is really inexpensive. Unlike whole life insurance or other cash value life insurance policies, term insurance will generally cost you about 1/12th of the amount.
This makes it a really good thing to have for most people. Especially if you have other people counting on your income if you were to pass away.
Until next time!
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