Term Life Insurance

What is term life insurance?

Term life insurance is a type of life insurance that covers a certain period of time, typically from 10 to 30 years. 

Term life insurance is cheaper than permanent life insurance, this because term life doesn't cover your entire life.

In most cases, when you want to buy a term life insurance plan you will be required to undergo medical examination. Your heath condition and age are amongst factors which are mostly considered by the insurers to set your premium price. The premium is a fee of an insurance policy. Normally, unhealthy and older people pay higher than heathy and younger people. Also people with unhealthy habits like smoking may pay higher too.

In case you die within a coverage period, your beneficiaries receives death benefits from an insurer. But if you outlive a policy, the coverage ends and your beneficiaries receives nothing when you die unless a term is renewed. In most cases, premiums are not returned when you outlive the policy unless you are covered by a return of premium term life insurance which guarantees refund of your premiums once you outlive the policy.

Most of term life insurance policies allows you to renew a policy once reaches to an end. If you renew the policy, premiums will increase since your age has also increased. Medical examination may or may not be required for the renewal of the term, depending on the type of the policy issued. Some term life policies has an option to convert them to permanent life insurance policy, these policies are known as convertible term policies.

Types of term life insurance

Term life insurance is categorized into several types which vary in features depending on the coverage needs of the customers. These types are level term, increasing term, decreasing term, annual renewable term, convertible term, return of premium and group term life insurance.

 

1. Level term life insurance

Level term life insurance is a type of term life insurance by which premiums and death benefits do not change throughout a term. It is a most popular type of term life insurance. It is also known as a level premium term life insurance.

2. Increasing term life insurance

Increasing term life insurance is a type of term life insurance by which death benefits increase over time, usually after every year. While premiums may or may not increase over time. Increasing term is designed to protect death benefits from inflations.

3. Decreasing term life insurance

Decreasing term life insurance is a type of term life insurance by which death benefits decrease over time. It is cheaper than other types of term life since it's death benefits decrease as you get older. However, premiums usually remain the same. A decreasing term is mostly used to cover loans.

4. Annual renewable term life insurance

Annual renewable term is a type of term life insurance that is renewed every year, in most cases without re-qualifications. It is also known as yearly renewable term. In annual renewable, premiums increase each year as the age of an insured. It is suitable for people who need a short-term coverage.

5. Convertible term life insurance

Convertible term is a type of term life insurance which can be converted to another type of life insurance. A policyholder may required to undergo medical check for the policy conversion.

6. Return of premium term life insurance

As the name suggests, a return of premium is a type of term life which guarantees return of your premiums once you outlive a policy. It is more expensive than traditional life term.

7. Group term life insurance

Group term is a type of term life insurance by which many people are covered by one policy. It is mostly issued by employers for their employees.

Cash values

Term life insurance doesn't have cash value. If you are looking for the life policy that builds cash value you have to buy a permanent life insurance.

Advantage of term life insurance

1. Term life insurance is cheap compared to permanent life insurance.

2. You can renew a term when is up.

3. With convertible term, you can convert your policy to permanent life.

Disadvantage of term life insurance

1. Term life insurance doesn't have cash values. 

2. It doesn't cover entire life, thus you may outlive a policy.