So you are considering a term life insurance policy? That’s a good thing. However, to ensure that you are really getting the most out of it, you need to understand a few basic things about this policy?

What Is Term Life Insurance?

Term life insurance (also referred to in some places as term assurance) is a type of life policy that pays out a benefit to specified beneficiaries if the insured person passes on within the given period in the policy (This period is referred to as the term — Hence the name).

Who Is Term Life Insurance Best For?

There are different uses for a term life policy. Here are a few typical uses of this policy…

  1. To help replace a family’s income if the bread winner dies. The bread winner would be the insured and the family his/her beneficiaries.
  2. To help protect a family from destabilization by providing funds for the repayment of outstanding mortgage.
  3. Ensure that the insured’s kids get the college education planned for them even if the parent or parents pass on.
  4. Help mitigate the pressure on a spouse in child-raising years. That is, if one of the parents passes on. A working mom, for example, might have to work less in order to cater fully for the kids if her husband passes on. A good term life policy will provide the lump sum (in form of benefits) to help the remaining spouse navigate through this difficult period.
  5. It is used to protect a business from the consequences of a partner’s death. Funds paid out could help hire competent replacement.
  6.  It is used to protect a business from the loss of a very important employee.

Are There Different Forms of Term Insurance?

Yes, there are a number of different forms. In fact, specific insurers may have particular products or packages that are basically term life. Here are some popular variations you’ll find in the market…

Annual Renewable Term

This is usually based on the most basic possibility which allows the insured to buy coverage for just a year. Because it isn’t likely that an insured person who qualifies for a one-year term coverage will pass on within the year, people rarely buy this basic form.

However, insurers have developed a better way of implementing the concept by adding a renewable feature to the term. So folks who might be tight on budget could easily pay for a one year term with the benefit of renewing if they choose without having to provide further proof of insurability.

But bear in mind, though, that you may NOT have this variation with a large number of insurers (Depending on the convention in your country or state).

5 Year Term

As the name implies, you get the protection you need for the period of five years. Since it is usually more affordable than longer term products, it is a good idea for folks who are tight on budget but need protection for a short term.

Usually, you have a guarantee that you can keep renewing this policy at the expiration of each term usually up to a specified age (You’ll become ineligible once you exceed that age).

Select Term

This variation allows you to choose any term from 10, 20 or 30 years. You also get to choose the guaranteed benefit you want. It usually comes with guaranteed renewability and premiums are usually level for the first term of the policy.

Mortgage Life or Decreasing Term

This is a special variation that is meant to provide protection for mortgage repayments. The death benefit is usually fixed for the first five years. Thereafter, it decreases much like your mortgage balance over the years.

Return of Premium

This variation of term life is unique in that it guarantees a return of all premiums you’ve paid if you outlive the term chosen (usually 20 or 30 years). The other condition is that the policy must still be in full force (In other words, you are NOT missing premium payments and it has NOT been cancelled by either party for any reason).

What Are The Advantages Of Term Life Insurance?

  • You get more coverage per dollar spent than other forms of life insurance.
  • It is easier for people that are hard-pressed financially to get adequate coverage.

 

What Are The Disadvantages of Term Life Insurance?

  • It does NOT build any form of equity. It’s almost like paying rent. No matter how long you remain a tenant, you don’t own even a piece of the building. The return of premium term life policy, however, lets you get back all premiums paid provided you outlive the term.
  • Furthermore, this is pure insurance: Protection from risk. You buy auto insurance but pray you never need it. You buy a homeowner’s policy and pray your home is never razed down. Treat term life the same way and it really ceases to be a disadvantage.
  • Benefits are paid out only at the death of insured. That is, if the insured dies within the term and NOT one day later. However, you can always renew with guaranteed renewal and so have coverage for as long as it is a need.

Is It An Effective Protection Instrument?

Term life insurance is an effective way to give your loved ones the protection they need. Forget the whole talk of equity. What you are interested in if you are shopping for insurance is protection from probable risk. Invest the savings you’ll make by choosing it instead of a whole life policy over time and you’ll see you really have a better deal.