The simplest and least expensive form of life insurance coverage is term life insurance . It gives death benefit coverage at a guaranteed premium for a specific period of time – usually five to 30 years depending upon which product you select. Since premiums are low as compared to other types of life insurance, term life insurance policy is ideal for new families seeking economical protection. While term life insurance policy doesn’t include the ability to accumulate cash value, it can help a family maintain its lifestyle, cover college tuition and pay off a mortgage in the event of the insured person’s death.
Term life insurance policy is an approach which gives monetary inclusion during a set measure of time. Regularly considered the “most straightforward” type of life coverage, it is most appropriate for giving inclusion or pay to a present moment and on a restricted spending plan.
Who should consider life insurance?
- Younger individuals and new families
- Those seeking additional, inexpensive coverage to complement existing policies
- Someone seeking short-term coverage – for example, to qualify for a business loan
- Affordability – for younger policyholders, it’s the least expensive life insurance coverage
- Low risk – you know exactly what you’re getting with term life insurance
- Adaptability – many policies allow you to convert to universal life or whole life insurance policy at a later date
How term life insurance differs from other life insurance policies:
- Provides protection only during the term of the policy, then the coverage ends
- Offers a death benefit only; does not allow for cash value accumulation
- Has a low premium that is guaranteed for a selected period. At the end of the stated guaranteed period, premiums generally increase significantly to keep the policy in effect.
How It Functions:
Any life insurance policy that protects you for a specific, predetermined amount of time is a term policy. Should you die during your policy’s term, your nominees will accept the payment – should the policy expire before you do, there is no pay out.
Term policies are only insurance; they did not have any cash value or added savings feature.However, during the life of the policy, you may be able to secure loans using death benefit as collateral. Any such use of your policy will, however, decrease the death benefit until the loan plus interest is repaid.
Term life insurance policies are famous among policyholder because of their affordability and flexibility. With a term life insurance policy, you select the amount and period of your policy’s coverage.
Insurers typically offer term policies in increase of 5 years, up to a maximum of 30 years. Some insurers also offer annually renewable one-year policies.
Term policies generally feature a fully guaranteed rate that will not change over the life of the policy, but some policies may feature variable rates in return for less premiums.
Insurance company almost always need a medical exam for any type of life insurance. Some of the insurance company will allow a policyholder to renew an expiring policy without benefit of a new exam, but this is not always the case. Most insurers will not extend a new term life insurance policy to applicants who are 70 or older.
Types of term insurance policies
Renewable Term Insurance
This policy permits you to renew insurance coverage at the end of the term without submitting medical information. The company renews your policy even if your health has weakened. Whatever, the premium rate will usually higher with each renewal.
Convertible Term Insurance.
You can alter your term coverage into a permanent policy without giving evidence of insurability (usually a medical exam). Convertible policies premium are usually higher than for nonconvertible policies. Once altered, the permanent coverage premium will be higher than those you are currently paying for the term policy for the same death benefit. However, the premiums for the permanent policy will now be the same while the term premiums will continue to increase in renewal.
Level Term Insurance
These policies offer a fixed premium for a certain number of years, usually 10 or 20 years, while the death benefit remains unchanged. The advantage is that you lock in a given rate for the duration of the policy. The disadvantage is that rates will jump enough if you desire to renew with another level policy.
Decreasing Term Insurance
The death benefit in this type of policy reduce over its term. For example, you might start with $100,000 of coverage and the amount of coverage would decrease by $10,000 each year for 10 years. The premium will differ over the term of the policy. This policy is no longer sold very often.
Is term life insurance right for you?
Term life insurance offer basic coverage for a specific number of years at a fairly low cost. This makes it an especially catching option for people who need to protect their beneficiaries, but who don’t have a lot of cash freed up for the project.
When selecting your policy’s term and benefit, you need to carefully consider your current financial and family conditions. Most insurance company will provide helpful tools to help you calculate your preferable policy size.
Who isn’t a good match for a term policy?
A life insurance policy can be used for any purpose, from backing a business loan to activating charitable gifts. If your goal is to temporarily protect loved ones from the financial hardship that result from your death, you can look for a permanent policy.
Term life insurance policies are famous among consumers because of their affordability and flexibility. With a term life insurance policy, you select the amount and period of your policy’s coverage.