Term Life Insurance And Its Different Types
Life insurance is a necessary product for anyone who has dependants. A consumer will need to decide whether permanent life insurance or term life insurance most suits their needs. This article explains term insurance.
Term or temporary life insurance will remain in force for a specific time period that typically lasts between one and thirty years. At the end of the term the insured may have the option to convert or renew the policy. It is ideally targeted at consumers looking for inexpensive, short term cover to financially protect their family in the case of their death. If premiums are not paid the policy will expire.
This type of policy will only pay out upon death of the policy holder and there is no accumulation of cash value (unlike with permanent life insurance). For these reasons term insurance is often referred to as a “pure” life insurance product. It provides cover only for the event of death during the term, and offers no additional benefits.
Typically term insurance will have the following features:
- Premiums will be fixed or increase.
- Premiums are paid periodically.
- Premiums are more easily afforded because the insurer expects that the death of the insured is not likely to occur during the period of cover (the term).
- The death benefit (face value) is guaranteed to be paid out upon death.
- There is no accumulation of a cash sum - no investment part to the policy. If the policy holder outlives the term there will be no pay out. At this point the insured may have the option to convert and/or renew the policy.
However, insurance providers are able to offer some flexibility in the features their policies offer. In particular the length of term; face value (death benefit); and the premium payable are subject to variation. Simply, policies can be divided into the following categories:
Level Term
Premiums remain stable. The disadvantage of this policy is that the death benefit will also remain stable. For this reason it may not be a wise long term option.
Increasing Term
In this case the premium paid increases by a set percentage or by a value linked to the Retail Price Index, thus allowing growth of the death benefit.
Decreasing Term
A Mortgage Protection Policy is a typical decreasing term product. With such a policy premiums are generally stable. The face value is set with the purpose to equal the outstanding balance on the insurer’s mortgage upon their death. For this reason the face value will decline; and the term will match the length of the insured’s mortgage term.
Renewable and Convertible Term
An Annually Renewable Term is a popular policy that lasts for one year. When the term ends the policy holder has the right to re-new the policy with the insurer, without the requirement of another medical assessment. However, the renewal premium will usually be higher than the in previous year, so long term this option will become expensive. The benefit is that this option protects the policy holder against the risk of becoming un-insurable. Also in the short term, cover is inexpensive.
A convertible term policy gives the policy holder the option to convert their term insurance to a permanent life policy at a later date. Not all insurers offer permanent life insurance and it is important to note that an insurer must offer a product to be able to convert to it. Renewable and/or convertible terms may be a feature of any term policy.
To conclude, a term life insurance policy is an affordable and ideally short term product. The death benefit is guaranteed to be paid out upon death of the insured. It is not an investment product. If the insured outlives the policy there are no financial gains. It is a useful and inexpensive short term option for those who simply wish to have peace of mind that their family will be financially looked after upon their death.
Christopher Robin is a copywriter and his mostly articles are focused on insurance. He is writing for http://www.protected.co.uk/. For more information on life insurance please visit our website. You can also compare life insurance of different companies.
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