Of the many forms of life insurance, term life insurance is one of the most popular. Term life insurance is considered to be the original form of life insurance. It is also thought to be the one pure form of insurance as it builds no cash value over time. This is the opposite of many of the other types of life insurance such as whole life, universal life, and the other variants.
Some of the more important features of term life insurance follow:
Term life insurance provides coverage for a limited period of time. Once that time period is over, the person may end the policy completely or may pay additional premiums and continue the policy.
If the insured dies during the term, the death benefit will be paid to the beneficiary.
Of particular importance to many consumers is the fact that term insurance is often the most affordable way to purchase a substantial death benefit. Term life insurance is often purchased on a "per unit" basis. The more units the insured has the more the death benefit will be.
Term insurance functions in a manner similar to most other types of insurance in that it satisfies claims against what is insured if the premiums are up to date and the contract has not expired, and does not expect a return of Premium dollars if no claims are filed.
As there is no cash value with term insurance it is used primarily as a death benefit. The money received from a term policy is usually used for such things as burial expenses, debt payoff, college education for dependents, and mortgage payments.
Many consumers will buy what is known as an annual renewable term policy. This is a simple and effective way to cover a person with life insurance. At the end of the year, another policy can be purchased or the consumer can drop the company altogether.
It should be noted that when purchasing yearly the premiums may go up with each new policy. If you expect to keep coverage for any length of time, you may want to ask for a rate quote for a longer period of time. That may save you money in future premiums.
Consumers should also be aware that the insurance company may turn down an applicant for health reasons. This is true even if the insured had a policy the previous year or previously agreed upon time frame. In other words, say a person bought a policy and during the coverage period was discovered to have a terminal illness. The insurance company may elect to not renew at the end of the current policy if that person is still alive.
There are some ways around this problem. One of them is through the use of "guaranteed re-insurability" programs that some companies offer.
Another method might be through the use of an annual renewable term policy (ACT). With this type of insurance, the premium is paid for one year of coverage, but the policy is guaranteed to be able to be continued each year for a given period of years. The length of time varies depending on the policy but usually runs from 10 to 30 years. It should be noted that as the insured grows older, the premiums increase with each renewal period. At some point in time the premiums would be higher than the policy payoff but the chances of the benefit being paid (somewhere along the time line) are much higher with this type of term life insurance.