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Introduction to Term Life Insurance Basics

Life insurance can be an important part of estate planning, especially for the parents of young children or a disabled child. The purpose of an insurance policy is to provide cash for the beneficiaries upon the premature death of the policyholder.

For a person that does not receive regular income from investments or other assets, an insurance policy can replace lost earned income. There are even instances where a divorcing couple with children will have to declare their former spouses as beneficiaries in the event of the death of one of the parents. This means that life insurance affects a great number of Americans.

But the question is, how much do we know about this important subject? Luckily, the researchers at FindLaw have put together various resources about life insurance options.

The most popular type of life insurance is called a term life insurance. The reason it is called a "term life" is because the policyholder receives coverage for a certain amount of time specified in the policy. Because it only covers a specified period and the premium only pays for the insurance policy, this is the least expensive type of insurance available.

Terms of coverage, for instance, may range from 5, 10, or 20 years. Once the term ends, the policyholder may have the option to renew the policy beyond the original term but the premium usually increases with each renewal.

What New Yorkers might like about a term life insurance is that it is generally inexpensive. However, it is sometimes deemed to be a bit unreliable because it can be canceled and because the premiums become more expensive as the policyholder ages.

Depending on the insurance company, a policyholder may have several options under term life insurance. One option is that you can renew it by paying the new premium. Another option is that you can change from term life to a permanent life insurance option -- which we will discuss in a future blog.

You might be wondering: "Is term life insurance right for me?" Well, it is not appropriate for all types of policyholders. For instance, term life insurance may be most beneficial to a person with young children or for a person with temporary expenses, such as a home mortgage or an auto loan. Term insurance is less desirable for a person living off investments and retirement income.

So there is your introduction to term life insurance basics. For more information on life insurance, see the Related Resources below, or talk to an estate planning attorney in your area.

Related Resources: