Term Life Insurance

By
rjonesx
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Definition

Term life insurance or term assurance is life insurance that provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is typically the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.

Term Life Insurance

Term life insurance is a form of protection. It is a policy that has a set duration limit. After the policy has expired, it is up to the policy maker to take the decision of whether they want to renew their policy or let the coverage end. Term life insurance is not like permanent life insurance, because that extends until the policy holder reaches the age of 100.

Understanding Term Life Insurance

These policies provide benefit when the policy maker dies, if the death happens in the given time period. It is important to know that term life insurance does not provide any returns other than the stated benefit, which is different than permanent life insurance policy that has a savings component, which people use for wealth accumulation.

Types of Life Insurance

Term life insurance is less complicated and is much cheaper. There are two types of life insurance:

Annual Renewable Term

This is for a year and the premium is adjusted each year according to the age.

Level Term

It is a policy that is sold according to term periods of life that are generally for 5, 10, 15, 20, 25, 30 years. In some of the level term policies the premium does not change, whereas other policies state that the policies won’t change for a few years.

These policies only provide a death benefit that is if you buy a premium and you die during the term, your beneficiaries will receive all the benefit. These policies don’t involve any savings component or cash value because they don’t provide coverage for the entire life. Term policy is great for a family with young children because that way you will only need coverage until your children are older, and start earning on their own.

Term Life Features

Two great features of term life are:

Convertibility 

This means that you always have the choice of converting term life insurance for permanent life insurance. It is important you know that convertibility increases the premium amount.

Renewability

This means that the policy can be extended if you agree to a few terms.

Further Reading

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