What is the best description of term insurance?

Answer 1

Term life is a kind of life insurance that remains in force for the amount of time (the "term") stated in the policy. At the end of the term, coverage of the policy ends.

In its usual form, term insurance does not accumulate cash value, like whole life insurance. Cash value can be likened to a "savings account" within the policy into which a small part of every premium dollar is deposited. Unlike this, the premium for a term policy is tied more directly to the actual cost of providing the death protection. Therefore, term insurance is generally less costly than whole life insurance.

purchased for a certain time period with a specific premium cost

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Answer 2

Term life insurance is insurance on a human life that remains in force for a stated period of time as long as premium payments are timely paid. It comes in various forms. Most of the variations have to do with premium, for example, the premium can remain level, or increase over time. As to the latter, the increases often occur when the insured reaches certain ages.

Term insurance is best contrasted to whole life insurance. With this, there is something of a "savings element". That is, some of the premium goes to pay for the death benefit based upon actuarially determined factors, and some goes into something that is akin to a savings account. The latter is called "cash value" but should never be confused with a real savings account. The cash value accumulates slowly at first, but faster when the policy has been in force for a longer period of time. The cash value can also be borrowed, but it accrues interest at a rate stated in the policy. If the policy loan is not repaid, the principal and accrued interest reduce the death benefit payable.