Term life insurance is sometimes called term assurance. It is a form of life insurance gives a set amount of coverage for a limited period of time. The time period is often called the relevant term. In exchange for this set amount of coverage, the purchaser agrees to either pay a lump sum of money, a fixed rate of payment for a specified term, or some combination of those two.

With term life insurance, if the insured person dies during the period of coverage, the entire payment amount is paid to the beneficiary. Term life insurance is the most inexpensive way to purchase life insurance. This can be good in certain circumstances. It also has some drawbacks which I will cover later in this Hub.

.Term life insurance functions solely as a risk protection device.

Term life insurance is strictly a death benefit. Because of this fact, most people use it to cover specific financial responsibilities that they have. For instance, I may purchase a term life insurance policy to cover dependent care until they reach the age of 21. This way, if I die prematurely, my children will have enough money to cover their expenses until they reach the age of majority. Or, I may purchase it to cover college education for these same children. Alternatively, I may purchase term life insurance to cover a mortgage, some consumer debt, or even my estimated funeral expenses. As you can see, you can buy term life insurance for a variety of reasons, or any combination of reasons. And it will typically be much less expensive than a whole life, a variable life, or a universal life insurance policy.

Most financial experts will recommend term life insurance until there are sufficient funds built up in the form of savings and retirement. This way, expenses will be covered and debts paid off in the event of a premature death. The expectation would be that at a specific age, when the term life coverage ends, the savings of the covered person would be great enough to cover those same potential expenses.

Term life insurance and permanent insurance such as a variable life insurance policy use the exact same mortality tables. This should be obvious because the chances of an insured person are the same regardless of what insurance they do or do not have. Both types also provide a death benefit (the insurance payout) that is income tax free. The only major difference is that one provides coverage for a set period of time. At the end of this period of time, the insured person will have to renegotiate a new insurance policy based on their current age and health. Let me tell you, no matter what, your age will be higher and your health will most likely be considered worse. This means that if you have a term life policy that expires and you want to renew, you are going to pay substantially higher rates. A permanent life insurance policy, on the other hand, starts out with higher rates but these rates stay the same throughout the life of the policy.

The major reason the price is different is because insurance companies know that the chances of them having to payout are significantly lower on a term policy. This means they charge less. Often times the price can be as much as 5 to 10 times cheaper. But don't just jump because it is cheaper--consider your long term needs. Do you need coverage, or will you potentially need coverage later in life? If you will, you may want to consider some permanent life insurance.