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Term life insurance is a form of temporary insurance, provided for a pre-determined period of time. At the end of the initial term, the policyholder often has the option to continue the policy and pay the premium for another period of time. This can continue for 10 to 30 years, or sometimes until the insured reaches age 95. As the insured ages, the premiums increase accordingly, but become financially unviable later on as the rates for a policy eventually approach the face amount. The primary uses of term life insurance are to cover temporary financial responsibilities of the insured including consumer debt, mortgages, and dependent care and education.
A term life insurance policy provides pure death benefit protection, meaning that the death benefit will only be paid to the beneficiary if the insured dies during the term of the policy. The outcome is a lower likelihood of an insurer having to pay a death benefit. For this reason, term life insurance rates tend to be the lowest among all life insurance policies. Because the term expires, the insurer often does not have to pay out reducing the price of premiums and making term insurance an inexpensive way to purchase a substantial death benefit. The reason the price of premiums are substantially different is that term programs potentially expire without ever paying out, while permanent programs do not terminate until the insured dies and will thus always pay out.
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