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3.12 Term life insurance

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This insures a person for a specific period of time. The most common period is five years. If the insured dies within the term of the policy, the insurance company pays the full face amount to the heirs. The cost of premiums is based on life expectancy for the person’s age during the five-year period. Term life does not have a cash or loan value.

Because term life insurance can be written for various time periods, and because the premiums are generally inexpensive, it is valuable to the businessperson. Term policies are often used to provide collateral security for loans to the firm or for personal obligations.

It is wise to have term insurance for at least the amount of personal and business financial obligations for which you have a direct or contingent liability. This area is frequently overlooked.

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