A good way to understand term insurance is to think of it as 'renting' a policy for a specific time frame (term.) During the specified term (10 years, 15 years, 20 years, etc.) your premiums and benefit amount are set and should not change. After the term period has run out most policies will either not renew or renew on an annual basis with your premiums calculated yearly at your attained age. Term insurance is the most economical because it allows you to get the maximum coverage for the smallest premium dollar.
Good candidates for term insurance are young adults or families with young children. Parents of young children may need a substantial amount of insurance to help their family maintain their current lifestyle in the event of an untimely death. However, over time, liabilities tend to decrease. For example a 35 year old male with a wife and 2 children ages 4 and 8 may need in excess of 1,000,000 depending on his financial situation to cover things such as living expenses, mortgages, education and lost income for his family now...but 20 years from now his situation may be drastically different. Also by that time his youngest child will also be 24 and not as dependent as they were at 4 years old. The reason this concept makes sense is because this 35 year old male, assuming he is in average health, could buy a $1,000,000 20 year term policy with a guaranteed monthly premium of $55.00. If he were buying a permanent policy his premium would be 453.00 per month for the same face amount! On the other hand, if his budget was only $55.00 per month that would only buy him $105,000 in protection on a permanent policy...which doesn't go very far these days!
Many people also use term to cover certain debts such as loans or mortgages. Business owners may also use term to protect them from an untimely death of a key employee or partner. Whatever the specific need may be, it is always best to consult with a professional agent to see if a term policy is the best fit for you.
