Simply put Term Insurance is insurance providing coverage for losses to the insured during a stated period but becoming void upon its expiration.

Term life insurance or term assurance is the original form of life insurance and is considered to be pure insurance protection because it builds no cash value. This is main difference to permanent life insurance such as whole life, universal life, and variable universal life.

Term life insurance provides coverage for a limited period of time, the relevant term. After that period, the insured can either drop the policy or pay annually increasing premiums to continue the coverage. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is often the most inexpensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis.

Term insurance functions in a manner similar to most other types of insurance in that it satisfies claims against what is insured if the premiums are up to date and the contract has not expired, and does not expect a return of Premium dollars if no claims are filed. As an example, auto insurance will satisfy claims against the insured in the event of an accident and a home owner policy will satisfy claims against the home if it is damaged or destroyed by, for example, an earthquake or fire. Whether or not these events will occur is uncertain, and if the policy holder discontinues coverage because he has sold the insured car or home the insurance company will not refund the premium. This is purely risk protection.

Term life insurance provides coverage for a specific period of time, known as the term. Term life insurance is often referred to as temporary insurance or pure insurance because there is no cash value, only death benefit protection. You can typically buy term life insurance for a coverage period of between 1 and 20 years. If you die during the policy term, your beneficiary would receive a death benefit equal to the face value of the policy. If you don’t die during the policy term, your beneficiary would receive nothing, and your coverage simply ends. At this point, you can either renew your existing policy or purchase a new policy to maintain the same coverage.

Term life insurance is less expensive to purchase than permanent insurance (such as whole life, variable life, or universal life) during your early years. However, the cost of term insurance typically goes up as you get older or as your health declines. Thus, term insurance may actually cost you more if you want long-term coverage, since you will need to purchase a series of increasingly expensive policies to maintain coverage throughout your life. And when you reach age 65, you may find it difficult to find an insurance company that will give you a term policy for more than 10 years, and it will be very expensive.

There are many times, however, in which term insurance may be the most appropriate choice. If you have a great need for insurance but limited resources, you should consider term insurance. For example, a young family may need a great deal of income to cover living expenses and educational needs if the breadwinner should die. Term insurance would allow the family to buy insurance protection with limited cash outlay. Term insurance is also appropriate if you need coverage only for a limited period, such as while your children are in college, or while your business is in its start-up phase.

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