What Is Term Life Insurance Policies?

Term life insurance is so called because it is for a specified ‘term' – this could be for 2, 4, 12, 16 or 20 years. It also sometimes referred…

Term life insurance is so called because it is for a specified ‘term’ – this could be for 2, 4, 12, 16 or 20 years. It also sometimes referred to as ‘temporary’ insurance. If the issuer passes away during the time of the term, then a cash payment is made to beneficiary. If the policy holder passes away after the specified term period, then no cash payments are made out to the beneficiary. Also, once the term is over and the policy is not renewed or availed, the coverage ceases.

Term life insurance covers you for a certain amount of time – the term. The term that is suitable for each individual depends on different factors such as how many years of schooling the children have left and how many years until you retire. Sometimes people will make sure they’re insured until they retire. Others will want insurance until their children finish and graduate school so that they can cover those tuitions fees.

There are different types of term life insurance policies and they have different courses of action for when the term is over. They are:

Annual renewable term insurance – this policy is renewed after every year up to a specified age say 60 for example. Chances of you dying also increase as you get older. Because of this reason, it is easy to understand why the premium on your policy also increases as you renew. However, if you purchase your policy when you’re young and in good health, you can take advantage of a comparatively cheaper premium than you would have to pay when you grow older.

Renewable term insurance – ensures that insurance company allows you to renew your coverage at the end of your term – even if you haven’t been doing well health wise and are ill. This is similar to annual renewable term in principle but it has the added advantage of extended, extra time on your policy. However, this policy is more expensive than annual renewable because it has more risk to the insurance company for extending the policy. Premiums will also increase when renewed.

Level premium term insurance – this type of insurance policy makes sure that your premium stays the same “level” for the duration of the term –usually for 6 to 20 years. Companies calculate the average of what they would charge you for annual renewal and this is what they charge you on level premium. The big plus of this policy is that your premium remains the same throughout the tenure of your policy.

Decreasing term insurance – this is usually used when purchasing entities whose price reduces over time. With this kind of policy, the cash payments reduce over time while the premium remains level.

Convertible term insurance – these allow you to convert your current policy into any other policies offered by the insurance company. The advantage is that it gives you an option of switching according to your policy needs – which do change or need to be altered according to needs over time. However, this comes with comparatively more cost.