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Temporary insurance is also known as term insurance. It is a type of insurance that has benefits only after the policyholder has died, assuming payments on the policy were paid and uninterrupted at the time of death. These benefits are in the form of cash given to the person named as the beneficiary on the policy.
Despite its name, temporary insurance can be a long-term plan taken out for anywhere from five years to as much as 30 years. Should a policyholder live beyond the years of the temporary insurance plan they signed up for, the policy ends and does not retain any of its value. In addition, a temporary insurance plan does not build equity. Should the policyholder pass away during the term of the temporary insurance, however, the beneficiary receives the full value of the policy.
There are some insurance companies willing to renew a temporary insurance policy after the initial term is complete, but there is a cost associated with each renewal. Most of the time, the policyholder decides to discontinue the policy after the term is completed because it is too expensive to continue.
In order to qualify for a lower rate on a temporary insurance policy, a person has to provide evidence of insurability. The less risky a lifestyle the person lives, the lower the rates for the temporary insurance will be. For example, a smoker, a person who is overweight, or a person who is ill will generally have to pay a higher rate for temporary insurance than someone that does not have these characteristics. Similarly, certain occupations, such as being a pilot or a police officer, are associated with higher insurance rates.
Most people take out a temporary insurance policy in order to provide for their children in case of their death. Often, parents select a temporary insurance policy that will be in place until their child or children are adults and old enough to care for themselves. Some people also take out a temporary insurance policy because the premiums are lower than those of permanent insurance policies. Temporary insurance can also help make it possible for a person to receive a home mortgage, car loans, and other loans requiring proof of insurance.