What is Term Life Insurance? Short-term Security to Cover Debts or the Upbringing of Children

Choosing the kind of life insurance one needs can be a difficult decision. Many people procrastinate on purchasing it because the thought of one's mortality can be upsetting.

However, people must confront that they will die one day, and that everything they did before that time will make up the legacy they leave for others to remember them by, including the financial state in which they left their family.

Defining Term Life Insurance

Term life insurance allows a person to have coverage over a specific period of time, often at a low price.

For example, If a 27-year-old man, who is a non-smoker, purchases $500,000 worth of life insurance today, he may be required to pay $300 a year for the next 20 years. If his life ends at the age of 46, his family will receive the full policy amount of $500,000, just as they would if he passed away next month.

Term Life is a no Frills Policy

Unlike whole life insurance policies that offer dividends and cash value options, term life insurance is more simple.


Those who obtain term policies are doing so only for the death benefit, meaning that the only person or people who will ever gain anything from this policy is their loved ones in the unfortunate event of their early passing.

There will be no borrowing against the policy, just low payments while the insured finds other methods to build wealth.

Self Insuring While Holding a Term Life Policy

Several sources ranging from State Farm to Investopedia.com mention that while holding a term policy, people should use the time that they are insured to self insure.

Radio show host Dave Ramsey says in his book The Total Money Makeover that self insuring can be done easily if one can pay off their consumer debt using the debt snowball, build an emergency fund up to half a year's worth of income, and pay off their home mortgage in fifteen years.

In fact, it appears that a 20-year term policy is precisely the right type of insurance for the kinds of people that would utilize such a plan since one can buy about five times the coverage for one fifth the price of a whole life policy.

During the time they have the policy, people can build up their net worth so that no life insurance is necessary later, and in the unfortunate event of an early passing, they will leave their family with the security they need by way of the policy, allowing them to leave a legacy of wealth and wisdom to be passed on in future generations.