Definition
Life insurance that pays a set amount to your beneficiaries if you die during a fixed period, such as 20 or 30 years.
What it means
Term life insurance covers a specific number of years. If the insured person dies during the term, the insurer pays the death benefit to the named beneficiaries; if the term ends, coverage stops and there is usually no cash value. Permanent policies, such as whole and universal life, last for life and build cash value but cost much more for the same death benefit. Premiums for term insurance depend on age, health, tobacco use and the amount and length of coverage. Families often look at term insurance to replace income while children are young or a mortgage is unpaid. Life insurance is regulated by state insurance departments. Under IRS rules, death benefits paid to beneficiaries are generally not taxable income, though interest on them is.
Example
A parent who earns $60,000 might compare a 20-year term policy for $600,000, ten years of income, against the family's mortgage balance and future child costs.
Illustrative numbers only. Your situation will differ.