What is Term Life Insurance?

What is term life insurance?

It's a very basic form of life insurance. You can take out term life insurance to provide temporary life insurance on a restricted budget.

It exists for a limited period of time, the relevant "term"; after this time, it's
up for grabs again, either renewed, lapsing, extended or whatever. It's simply a life assurance policy that pays out if the insured person or persons die.

This makes it a very "clean" form of insurance - no cash sum is necessarily built up, although policies do exist that have variable cover. Usually, a simple term life insurance package will have a level premium over a number of years and will vary in its cost according to the age, health, locality or any number of factors that are chosen by the insurance company.

For obvious reasons, the older you are, the riskier the product becomes!

There are studies that show that the number of claims against term life insurance policies are very low - apparently around 1% is a rule-of-thumb figure. This means that the premiums are low compared to the payout if there ends up being a claim.

Because of the low likelihood of an insurer having to pay a death benefit, term insurance seems better when considered in terms of coverage per premium expenditure basis - by a factor of maybe up to 10!

You must remember to pay your premiums, otherwise the insurance company will have a reason to not pay out in case of death. That should be easy to avoid if you are paying by direct debit or some other automated means, but if you pay every month or otherwise, there is always the risk that the whole policy will not be valid. As a result, as with all insurance policies, it pays to check the wording carefully.