Term Life Insurance
is a life insurance for a specified duration limit, or time. You buy a
specific amount of coverage for a specific time period by signing a
contract. You pay for that coverage period and at the end of the term the
policy expires. For example, the term might be until retirement, or until
children are grown, or until college is paid for.
Term life insurance is the least expensive available insurance policy and
allows you to spend a lot less and use the extra money in a better
investment. It does not build up cash value and the premium normally
increases as the policy owner gets older. Usually term life insurance
covers a specific term such as term of 1year , term of 20 years or term of
30 years.
If you die while the policy is active, term life insurance provides a
stated benefit for it; and your survivors will be paid the agreed upon
amount. However, the policy does not provide any returns beyond the stated
benefit and once the policy expires, the insurance coverage ceases and the
insurance company keeps the money. Some term insurance policies give you
the right to renew at the same rate for multiple years, while others do
not. The former are generally a bit more expensive.
Term life insurance is most suitable for you, if you are:
o in need of coverage for a limited period of time,
o young and looking for lower premiums,
o buying a home or car, where the financial burden of a loan will
disappear in time.
Term life insurance policies must be renewed when each term ends. Before
buying a term life insurance policy, you should ask about the renewal
provisions for the protection of your future insurability. There are some
typical choices:
o Annual Renewable—–the premium go up each year.
o Level Term—–the premium stays the same for specific period like 5,
10, 15, or 20 years, then increases sharply.
o Automatic Renewable—–you’ll have to pay more for this feature.
Some other options on term life insurance policies may include:
o Re-Entry——it requires a lower premium than an automatically
renewable policy. You can renew at the same low rate offers to new
customer but you’ll have to pass a physical examination. If you’ve
developed any health problems, your premium could go up and cost more
than an automatic-renewable policy.
o Convert-able term——you’ll have the option to convert to a whole
life insurance policy in later years.