Term life insurance, also known as pure life insurance, is a type of death benefit that pays the heirs of the policyholder throughout a specified period of time.
Once the term expires, the policyholder can either renew it for another term, convert the policy to permanent coverage, or allow the term life insurance policy to lapse.
How Term Life Insurance Works
When you buy a term life insurance policy, the insurance company determines the premium based on the policy’s value and your age, gender, and health.
In some cases, a medical exam may be required. The insurance company may also inquire about your driving record, current medications, smoking status, occupation, hobbies, and family history.
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If you die during the policy term, the insurer will pay the policy’s face value to your beneficiaries.
This cash benefit which is, in most cases, not taxable may be used by beneficiaries to settle your healthcare and funeral costs, consumer debt, or mortgage debt, among other things.
If the policy expires before your death, there is no payout. You may be able to renew a term policy at its expiration, but the premiums will be recalculated based on your age at the time of renewal.
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