Term Insurance

Term insurance is a form of life insurance, i.e. a contract that pays a sum upon the death of the life insured. Term insurance gets its name because the contract is in effect only for a specified length of time, typically from one to twenty years. As long as premiums continue to be paid during the contract term, the contract will pay off should the covered person or persons die before the term expires (cf. Permanent insurance). At the end of the term, the contract is typically renewable for a further term, usually for a higher premium because the life insured is now older, but without proof of continued good health. Life insurance proceeds, including those from term insurance, are generally received free of tax by beneficiaries.

The most common term insurance policies are employment benefits and are typically one year renewable. If an employer pays some or all of the premium on such policies, a taxable benefitarises for the employee.

Those with term insurance needs over and above employer-provided coverage should contact an insurance agent. Costs for term insurance can be approximated using an online service such as Term4Sale.

Definitions

Insured

the owner of the policy, responsible for the premiums, and who must have an insurable interest

Life insured

the person whose death will cause payment under the policy

Beneficiary

the person(s) paid upon the death of the life insured