What Is the Meaning of Term Life Insurance?

by Rod Howell ; Updated July 27, 2017

A term life policy is one of two types of life insurance plans available in the United States along with permanent life insurance. This type of insurance policy provides a death benefit at an affordable cost.

Term Life Insurance

Term life insurance is a policy that covers an insured for a set period of time such as 5, 10, or 20 years. The insurance coverage will terminate once the time period ends.

Benefits

Term life policies are inexpensive because the policy owner is only paying for insurance. This plan does not have any investment options or build cash value as permanent life policies do, such as whole life and universal life.

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Considerations

Term life insurance can be bought individually through an insurer, or an employer or organization can sponsor a group plan.

Conversion/Renewability Clause

Term life insurance policies can include a conversion and/or renewability clause. A conversion clause allows policies to be converting into a permanent life policy without evidence of insurability. A renewability clause can extend a policy for additional years without the insured providing proof of their health status.

Warning

If term life insurance coverage is obtained through a group plan, the death benefit may be taxed as income to the beneficiary if the amount is over $50,000.

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