Term life insurance is a basic type of life insurance that only pays a death benefit if you pass away within a predetermined window.  With a term life insurance policy, you pay an insurance company a premium for a predetermined (or set) number of years or until you reach a certain age, (the term).  Once the term ends you stop paying, you are no longer covered, the insurance ends, there is no death benefit to pay your family, and you do not receive any cash from what you paid into the policy.  If you die during the term, the insurance company will pay a lump sum death benefit to your beneficiaries.

Term life insurance usually has a lower premium than other types of life insurance which can be paid monthly, quarterly, or annually.  Term life insurance may be a good option when you want to provide financial support to your kids, spouse, or a family if you unexpectedly pass away.  The proceeds from the insurance policy can be designated for and used to pay certain expenses such as education up to a certain level, wedding, debt you co-signed, living expenses such as mortgage or rent, and your student loans.

There are two types of term life insurance: (1) level in which the amount you pay is the same for the entire term.  This is a good option when you want certainty and don’t think you will need to change your policy in the near future and (2) annually renewable in which the premium changes each year – the premium is lower the younger you are and the older you get the premium will rise.

When buying a term life insurance policy ask whether you can convert the policy to a permanent life insurance policy in the future.