Term
Life Insurance is the most basic type of life insurance and
is the most affordable.
Term insurance is designed to provide death protection for a specific and
limited period of time such as 10, 15, 20, or 25 years. During this period of
time premiums (i.e. rates) are set a fixed level. Afterwards the policy resorts
to the renewal stage where insurance coverage is still provided,
but the rates increase annually. If the insured dies while the
policy is in force, the policy will "mature" meaning the
insurance company pays the the face value (aka death benefit) to
the policy's beneficiaries. If the insured is still living at the end of the policy's term, the
policy will expire.
Term insurance in its many forms is the most affordable protection available
for the premium dollar. It is particularly suitable for a person who has a
temporary need for insurance, for a person who may want permanent insurance in
the future, or for the person who has the discipline to buy Term and
invest the rest.
Many policies contain a convertibility option, which allows
the policy owner to convert
the term policy to permanent insurance (such as whole life or universal life)
without the need for a medical exam.
Some key features:
There is no investment component
of term insurance. You simply pay for and get pure life insurance
A term life insurance policy will
provide coverage for a specific period of time. This is generally
for 10, 15, or 20 years. If the insured dies during that this
period, the policy's beneficiary's will receives the face value of
the policy.
There is no investment component,
such as what is available in Universal and Whole Life policies.
If the policy
expires or is cancelled no death benefit payout will be due.
Term is generally
sought out by individuals not wishing to insure their estate, but
rather desiring to insure a specific period of their lives.
There are six important types of Term Life Insurance. Many policies contain
combinations
Level Term - Provides a specific and constant amount of insurance throughout
the life of the contract. generally 10, 15, 20, or 25 years
Decreasing Term - If the insurance needs of the policy owner decrease over a
period of time, it would be appropriate to purchase a policy where the death
benefit also decreases. An example would be where the insured mortgage payments
have ceased whereby eliminating the need for mortgage protection. Were a level
Term policy be purchased this event would create an excess of insurance
coverage.
Increasing Term - If the insurance needs of the policy owner increase
over a period of time, it would be appropriate to purchase a policy where the
death benefit also increases. Increasing term is more expensive than Level Term.
Renewable Term - This feature provides the policy owner with the right to
renew the policy without showing proof on insurability. During the renewal
stage, insurance coverage is still provided, but the rates increase annually.
Convertible Term - With this form of Term Insurance comes the right to renew
a Term policy to a new for of permanent insurance without having to show proof
of insurability
Return of premium - Insured pays
an increased premium and receives all cost of insurance costs
back at the end of the policies fixed term period, providing no
death benefit was paid.
