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What is term life insurance?

Term life insurance is a type of life insurance policy in which the insured individual is provided with coverage for a specified period of time. The duration of coverage typically lasts anywhere from 10 to 30 years, although policies with coverage periods of less than 10 years can be found as well.

If the person dies within the timeframe of the policy, the death benefits will be paid out to their beneficiaries. If the insured individual lives longer than the life of the coverage, the policy simply lapses or may possibly be extended, if the contract allows.

A different form of life insurance is permanent life insurance. A permanent life insurance policy remains in place until the insured individual dies, if the policy is still in good standing. Whole life insurance is a common form of permanent life insurance.

Another key difference between permanent and term life insurance is that various types of permanent life insurance policies accrue cash value that can be accessed while the policyholder is living. Term life insurance does not.

Why buy term life insurance?

There are a few reasons why an individual may opt for a term life insurance policy.

Term life insurance is generally more affordable for many individuals.
Because term policies have an end date, there’s a good chance the insured will outlive the policy. Permanent life insurance policies tend to cost a bit more because the insurance company will indeed have to pay these death benefits eventually (provided the insured person keeps up with their premium payments).

You may not need life insurance forever.
Many individuals choose a term policy because they feel that they only need life insurance during a certain stage of their life.

For example, life insurance is most often used to help replace a person’s income, help continue to make mortgage payments and to help fund college tuition for any of the insured’s children. But once the mortgage is paid off, the kids are grown up and on their own and you’ve built up a sizeable retirement fund, you may no longer feel the need for a life insurance policy. In this respect, outliving your need for life insurance is a good problem to have.

If your financial needs change later on in life, some term policies include an option to be converted into permanent coverage.

Term life insurance is flexible and has many uses.
The ability to convert to a permanent policy in the future is just one of the ways term life insurance remains flexible for consumers. You may choose how long you wish to have coverage and you can often add on certain policy riders and other additional features.

The ability to choose a small death benefit allows you to use term life insurance to cover your final expenses or estate taxes. Policies with short term lengths are sometimes used to provide coverage for a person who is travelling, making a career change or in other scenarios where coverage may only be needed on a temporary basis. Because of its customizable durations, term life insurance is also often used to secure buy-sell agreements for business partnerships or as an employee benefit.

Types of term life insurance

There are several different types of term life insurance policies.

  • Guaranteed level term life insurance ensures your rate will not increase during the life of the policy, similar to a fixed rate on a mortgage or car loan.

  • Annual renewable term life insurance provides coverage on a basis of one-year contracts that expire and renew every year at an increased rate.

  • Decreasing term life insurance policies decrease in value over the life of the policy as a way of gradually phasing out coverage (and premiums).

  • Return of premium term life insurance has a stipulation that will refund the premiums paid when the term period ends.
    Modified term life insurance uses an alternative payment structure that can help tailor a financing plan according to the insured person’s needs.

Shopping for term life insurance

Shopping for term life insurance is easy. Get in touch with an AIG-appointed insurance agent at 1- 866-971-4232 to learn more about term life insurance or shop for plans near you.

Agency services provided by AIG Direct Insurance Services, Inc. ("AIG Direct"), CA license # 0B57619 and AR license # 0100105378, a subsidiary of American General Life Insurance Company ("AGL"), Houston, TX and an affiliate of The United States Life Insurance Company in the City of New York ("US Life"), New York, NY, all members of American International Group ("AIG").

Policies issued by: American General Life Insurance Company (AGL), Policy Form Numbers ICC16-16901, 16901, ICC16- 16900 and 16900 except in New York, where issued by The United States Life Insurance Company in the City of New York (US Life), Policy Form Numbers 16901N and 16900N. Issuing companies AGL and US Life are responsible for financial obligations of insurance products and are members of American International Group, Inc. (AIG). Products may not be available in all states and product features including rates may vary by state. All guarantees and benefits of the insurance policy are backed by the claims-paying ability of the issuing insurance company. They are not backed by the broker/dealer and/or insurance agency selling the policy, nor by any of their affiliates, and none of them makes any representations or guarantees regarding the claims-paying ability of the issuing insurance company. ©2018. All rights reserved.


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