Term Life Insurance
How it Works?
The term life premium is determined based on the age of a person, health and life expectancy. If this person should then die within the specified policy term, the face value of the policy will be paid to the beneficiary and if the policy expires before the death of the policyholder, there will be no payout. At this point, the policyholder may renew a term policy; however, the premium will be calculated based on the current age of the policyholder at the time of renewal.
Since the age, health status, and sex are the basic determinants for the value of the policy premium, sometimes, depending on the face value, a paramedical examination, urine sample, blood sample, EKG or medical examination may be required for the policyholder and other variables such as the occupation, driving records, smoking records, hobbies and family history of the insured may be taken into account.
The term life insurance has its value in the guaranteed death benefit which it pays the beneficiary after the death of the insured. As is a common feature of some insurance plans, it provides no room for the saving of premiums, thus, if there is no death of the policyholder during the period of the term, no payment will be made.
As said earlier, the major purpose of the term life insurance is to provide a sufficient relief after the death of the policyholder especially as usually seen for healthcare and funeral cost, and debts which could have been acquired such as mortgage or other consumer debts. The term life insurance is therefore not appropriate for charity giving or estate planning.
Premiums in the term life insurance are flat for the period of the term, but as the life expectancy of the insured decreases and as the age of the insured increases, the premium increases. Therefore, the insured is bound to experience an increase in the premium on each renewal.
Because the life term insurance only offers an insurance of a face value for a limited period of time in case of the death of the insured, this makes it very affordable, unlike the whole life insurance where premiums are reasonably larger.
Types of Term Life Insurance
- Level Term Policies
The level term policies give’s coverage for a duration that is specified, usually, the range is between ten to thirty years. The distinguishing factor for these policies is that both the premium and the death benefit are fixed. However, for policy effectiveness due to the increasing insurance cost over the duration of the policies, the premium tends to be higher than for the other two types mentioned.
- Decreasing Term Policies
This type of term life insurance policies is very suitable for a mortgage; to match the coverage with the declining principal of the housing loan. The decreasing term policies have a death benefit which reduces every year based on an already established schedule. Throughout the term, the policyholder only pays a fixed premium.
- Yearly Renewable Policies
The yearly renewable term (YRT) policies do not have specified terms; they however work by a yearly renewal. They start off with low premiums which slowly build up as the age of the insured increase and the life expectancy decrease.
Who Can Optimally Benefit from the Term Life insurance?
For young couples with children, the term life insurance could be a great choice as they may obtain the insurance over a large coverage at considerable low premiums. In case of the death of any of the parents, the benefits of the insurance can remarkable fill in for the absent income for a good number of years.
The term life insurance is also a beneficial option if you are in need of a temporary life insurance, especially for those who have the estimation that by the time the term life policy will expire; their dependents will not require any extra financial protection.