The critical role of term life insurance in protecting families and financial futures

Life insurance basically encompasses a legal contract between a policy holder and an insurance provider, where the provider guarantees payment of a determinate sum of money to the insured's designated beneficiary(ies), on death of the insured, in return for a premium paid by the insured within specified period or at specified intervals. Broadly, life insurance can be divided into two categories: (1) The whole life insurance and the endowment insurance which entitles the insured or the beneficiary(ies) to a cash value after the insured's death or maturity of the policy respectively, termed as permanent insurance; and alternatively (2) Term insurance which is typically for a period of years that does not have an additional cash value and pays a stated amount if the insured dies during the specified term period. Consequently, the amount of premium for term insurance is much lower than that for permanent insurance, making it much more affordable and thus popular with families (Manral, 2015; Dos Santos, 2021; Mobilunity, 2024). There are two main types of term life insurance: level term and decreasing term insurance. A level term policy guarantees the same amount of insurance for the length of the policy's term. Decreasing term insurance provides insurance that shrinks over the term of the policy. Individuals generally choose level term policies since the insured's beneficiaries would likely need the same amount of financial support in future years after the insured's death. Considering the popularity of term life insurance with families, it is not surprising to note that currently, about 54% of all American adults believe that term life insurance is the most reasonable way to protect families. Only 38% of Americans have term life insurance however, and the need for life insurance is five to six times more than the supply.