What is Term Life Insurance?

What is term life insurance?

A term life insurance is nothing but a policy with a limited duration on the coverage period. When the policy gets expired, it is totally up to the policy owner in deciding whether to renew the term life insurance policy or to end the coverage. This is a contrast to other type of policy called permanent life insurance. A permanent life insurance is the one in which the policy owner enjoys the duration of 100 years (i.e. until death).

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What is Term Life Insurance

Why the word “Term”?

Term life insurance is called as a “term” as the owner will enjoy the coverage for only a specific period of time (most often 1, 5, 10, 15 or 20 years). That is why; this “term life insurance” is called as the “temporary” insurance. In case, the owner dies during the term, the policy will pay the cash benefits to the recipient or beneficiary. However, when the term gets over and if the policy is not renewed by the owner, the coverage will get ceased. If the death occurs after the coverage ceases, the beneficiary will not be paid with any cash benefits.

This term insurance is an uncomplicated type of life insurance which anyone could easily understand the rules and concepts. This term life insurance will be the best choice if anyone is looking out for a maximum amount of coverage with their investment.

Terms and Needs:

Whatever the term life insurance policy may be, the coverage period will be only for a specific amount of time which is called as “The Term”. These policies will be differing according to the owner children’s age, owner’s retirement period and other factors. Many will want to have the insurance coverage until their child graduates from college and in these cases it will be a best one if they make sure that their life insurance coverage includes the money for their children’s overall college tuition fees. Hence, one should have a wide knowledge about the varieties of policies and plans so that they shall avoid any confusion that might happen if they blindly take any policy without knowing its advantage and benefits.

It is the advice of many experts that you should carry the insurance at least  until your youngest child becomes 18. So, if your child is of 3-years-old right now, you will want to carry your insurance for at least the next 15 years so that this policy covers the insurance until your child becomes 18. This is one type of example on how you could choose your policy and the policy will be differing according to your child’s current age. But the overall idea is that it would be best if you take the policy covering your child until he or she attains the age of 18. This doesn’t mean that you need to stick to 15-year term instead you could buy an annual renewable policy so that you can renew it for the next 14 years in a line. Whatever the terms may be, you have to compare the terms so that you could make adjustments for the time and value of money which will determine the best value for you.

Different Types of Term Policies Available:

  • Annual Renewable Term Insurance: In this type of insurance, the policy will be automatically renewed each and every year but up to a specific age limit; mostly 65 or sometimes it may exceed. In general as the risk of death changes as they get older, their premiums will be going up each year as they renew. When you get a policy at your younger age and it gets over before your prescribed age (of risk) then one can obtain an extensive coverage for a low-cost premium.
  • Renewable Term Insurance: In this type of insurance policy, the insurance company will automatically allow the owner to renew their coverage once the term of the policy gets over(generally 5 to 20 years) even if the policy holders poses health risk. This policy is for a longer period of time whereas the annual renewable policy is for each year (as the name indicates). This renewable term coverage generally costs a lot when compared with the annual renewable policies, since this renewable term insurance is a bit risky for the insurance company. Also the conditions involved with this type of term insurance will be varying among different companies.
  • Level Premium Term Insurance: In this type of policy, the owner will be paying more at the early years and will be gradually decreased in the later years. Also the owner shall enjoy a big increase in premiums at the end of their term. The reason why the owner shall have to pay a less amount at the later years is that in this type of insurance, the premium will not be changed each year during the full course of period (generally 5 to 20 years).
  • Decreasing Term Insurance: In this type, your cash benefits will be decreasing each year while your premiums will be remaining the same during the whole term. This type is usually used to cover any item whose cost will be decreasing over time. But this type of term insurance is not advisable as the chances of more to increase the payable amount having lesser chance decrease in amount.
  • Convertible Term Insurance: If anyone wants to change their policy at the middle of the term, this type of term insurance would be a wise choice as this term insurance allows the owner to jump into any other types of insurance policies that the insurance company is offering. Again, this type also costs more as this involves a greater risk for the insurance company.
  • As there are many new “Terms” are involved in term life insurance policies these days it is always better and advisable to know what is term life insurance in general and more specific about the type of policy that you are choosing. You can careful about the money that is being invested without getting into any unknown troubles (or market risks). Do check out for the changes in the policies as these insurance policies may be changing from time-to-time and are not a standard ones.