Term life insurance refers to life insurance policies that provide coverage for a certain amount of time and typically only provide a death benefit. A basic term life insurance policy includes the policy owner paying a monthly or yearly premium with the premium increasing as the person ages. Should the policy owner die during the term, they will receive the death benefit which could be a set amount or an amount that changes overtime. When the term ends, the policy holder typically has options to extend the policy or convert the policy into a different type of insurance. Unlike whole life insurance, term life insurance does not involve an investment side to the policy that generates a cash value, and so, a term life insurance policy can not be traded in sooner for the value of the policy. Term life insurance policies can be tailored in many ways given their contractual nature. For example, premiums typically increase overtime because of the increased likelihood of death, but this can be done every year, every five years, or any other time period the parties to the contract agree upon.
[Last updated in April of 2022 by the Wex Definitions Team]