Buying Insurance

Lesson 4: Personal Life Insurance

Term Insurance

We might best begin with a brief discussion of term life insurance. It is called "term" because it is designed to last for a certain period of time: ten years, twenty years, or if provided through your work, until your employment ends. Term life insurance is a very simple game. You bet the insurance company that you will die this year, they bet you that you will not. If you die this year you win and the insurance company pays the person(s) you have designated to receive the money (insurance jargon:beneficiaries). If you don't die this year, you lose and the insurance company keeps your payment (insurance jargon:premium). This process continues until one of three things happens: (1) you die prematurely and the insurance company pays the dollar amount of the insurance to your beneficiaries; (2) the term of the policy expires and the insurance ends also; (3) you cancel or do not renew the policy because the cost gets beyond your means. Make no mistake about this. The "risk" portion of the cost for life insurance goes up steadily as you grow older. With term life insurance this means that the older you get the more out of pocket cost to you for your life insurance. The situation with permanent life insurance is a litle different and will be discussed below. For more on term life insurance see Hungelmann, pp.301-4.

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