Currently, life insurance policies are one of the most purchased insurance policies in the world.
This is because most people that come across it see it as a perfect plan to give their survivors a parting benefit in the event of their demise.
You might have an idea of life insurance, but do you know the types of life insurance?
If you don't, I'm going to be helping you by explaining one of the types, which is called Term Life Insurance.
Speaking on Term Life Insurance, I'll be discussing subtopics like;
• What Is Term Life Insurance?
• Key Things To Note About Term Life Insurance
• How Term Life Insurance Works
• Types Of Term Life Insurance
• Illustration Of Term Life Insurance
• The Benefits Of Term Life Insurance
Let's get to business.
WHAT IS TERM LIFE INSURANCE?
Term Life Insurance, known also as pure life insurance, is a type of life insurance that pays the survivors entitled to the policyholder's death benefit continually for a specified time period.
As soon as the term expires, the insured individual can decide to either renew it to go for another term, change the policy to a permanent coverage, or let the term life insurance policy expire.
KEY THINGS TO NOTE ABOUT TERM LIFE INSURANCE
Below are a few things essential for applicants of term life insurance to know.
• The term life insurance policy ensures a guaranteed payment of a stated death benefit to the beneficiaries of the insured, if it happens that the insured's demise happens during a specified term.
• The term life insurance policy premiums are basically determined by the individual's health, age, and living duration expectancy.
• There is no value under these policies other than the death benefit guarantee, and there is no savings component feature - a feature which is found in a whole life insurance policy.
• There is a possibility of an insured individual changing term life insurance to whole life insurance, although it depends on the insurance company.
• Term Life Insurance policies that last up to 10, 15, or 20 years are available for purchase.
HOW TERM LIFE INSURANCE WORKS
The life insurance company determines the premium an individual is to pay based on the payout amount, the individual's health, age, and gender, when the individual purchases a term life insurance policy.
A medical exam may be required in some cases though.
Also, the insurance company may ask the individual questions about his or her lifestyle, like what the individual does for a living, the individual's driving record, his or her current medications (if he or she is on them), their hobbies, smoking history and/status, and his or her family history.
If it happens that the insured individual dies while the policy term is ongoing, the policy's face value is paid to the insured's beneficiaries by the insurer.
This benefit paid, which is most of the time, not taxable, can be used by the insured's surviving beneficiaries in settling funeral costs, healthcare services, mortgage debt, consumer debt, and other related things.
It is important to note that if the policy purchased by the individual expires before the individual's demise, there is absolutely no payout.
Renewal is possible, but the premiums to be paid will re-estimated and recalculated according to the individual's age at the renewal time.
TYPES OF TERM LIFE INSURANCE
Term Life Insurance has several types.
Individual circumstances will decide the best option for each person.
Nonetheless, here they are:
• Level Term Or Level-Premium Policy
The coverage capabilities of this type of policy ranges from 10 to 30 years.
The premium and death benefit are both fixed.
The premiums paid here is greater than the ones paid in yearly renewable term life insurance comparatively, because it is a must for actuaries to account for the increasing costs of insurance over the policy effectiveness' life.
• Yearly Renewable Term (YRT) Policy
There is no specified term under this policy, but it can be renewed annually without the provision of evidence of insurability.
However, the premiums paid increase year by year, as the insured individual ages.
The premiums can become considerably expensive, even as there is no fixed term, so that makes the policy.
• Decreasing Term Policy
Death benefits that decline each year, according to a predetermined schedule, is what this type of term life insurance policy is all about.
The policyholder provides payment for a fixed, level premium for the policy's duration.
The policy is mostly purchased by individuals with mortgages, so they match the eventual payout of the insurance with the steadily decreasing loan.
ILLUSTRATION OF TERM LIFE INSURANCE
Alexander, 30, wants to provide protection for his family in the case of his unlikely early demise.
He purchases a $600,000 term life insurance policy, which will last for 10 years. He pays $60 monthly, as premium.
If it eventually happens that Alexander dies while the term life policy is still ongoing, the insurance policy will pay his beneficiaries the $600,000.
But if he dies after he has turned 40, that is more than 10 years - which means the policy has expired, there will be no payout to his beneficiaries.
If he opts for the renewal of the policy after its expiration, the premiums he will be required to pay will be higher.
This is because they will be calculated by his current age of 40, not his age of 30 when he purchased the policy newly.
If it also happens that Alexander is diagnosed with a terminal disease/illness in the duration of the first policy term, he loses his eligibility to renew the policy when it expires.
THE BENEFITS OF TERM LIFE INSURANCE
Term Life Insurance tends to be attractive to young individuals with little and promising children.
Being young parents, the individuals can obtain huge amount of the insurance coverage for low costs.
If in any case the payout is needed, the family can be rest assured in using it to replace lost income.
Even individuals with growing families have these policies well designed to be suitable for them.
They can have the anticipation that coverage will be necessary for them until their children have reached adulthood stage, and are independent.
To an older surviving spouse, the term life benefit may be equally useful, but it is logically not appealing, due to the fact that older policyholders are required to pay higher premiums.
For this reason, it is preferable most of the time, to find other ways to provide for a surviving spouse.
There is also a maximum age of eligibility for insurance companies' term life insurance coverage.
This age is between 80 to 90 years old.
