Understanding Term Life Insurance - Insurance

Term life insurance gives coverage for payments that have a set fixed rate over a specific amount of time. Once this time period is up, coverage is no longer available. When this happens, the person who was covered has to renew their insurance for another time period if they want continued coverage. If instead the insured person dies during the time frame for the insurance, then the benefits are paid to the beneficiary. This type of insurance differs from traditional life insurance in that it does not cover the insured for an indefinite amount of time. Because it is particularly inexpensive in many cases, it is considered the most cost efficient way to get death benefits.
For people who are interested in term life insurance, the most important concern is usually replacing income so that family or loved ones will not have to do without in the case of death. If someone is the primary caregiver or provider for a family, it makes sense to have some sort of insurance on that income in case the person in the provider role dies. Because of this, many people choose to end their life insurance terms around the same time that they would retire. The logic behind this time frame is that once a person retires, they will have enough money in savings and investments to live off of, and that money is what loved ones would live off of in the case of death for the insured. Term life insurance is no longer needed.

One type of insurance that isn't particularly common is the annual renewable term with guaranteed reinsurability for a set period of time, usually 10 to 30 years. This form of insurance has a term of one year, and can be renewed indefinitely on a year-by-year basis. In general, the premiums will increase each year, since it's more likely for a person to die as they get older. Eventually, the premiums will rise to be as high as a permanent life insurance policy, and so the term life insurance option will no longer be a viable option.
A much more common type of term life insurance uses a pre-set time period of coverage with a specific premium during that time period. In general, these time periods will be either 10, 15, 20 or 30 years long, although they can usually be renewed. The size of the premium depends on the length of coverage, and is adjusted for expected inflation over that time period as well. The longer the period of coverage, and the more risk factors the insured has, then the higher the premiums will cost.