What is Term Life Insurance
Term life insurance is simply called ‘term’ because coverage is provided for a specified time period. It is also known as temporary insurance. Term may range from 1 year to 20 years. If death occurs during the term, sum assured is paid to the beneficiary in cash. Term insurance policy can be renewed as per the discretion of the investor. It is the oldest type of insurance and is different from the permanent life insurance.
Term insurance is used to replace regular income source in situations which are unforeseen. This plan lapses if not renewed. Term insurance is aimed at simply covering the risk involved. It is different from the permanent life insurance where cash out option is available after the expiry of the term also. In term insurance, no cash benefit is available for the insured life after the policy expires.
Simplest term insurance is of one year. But this insurance is rarely availed because chances of survival of the life insured after one year are mostly high. Another very common term insurance type is annual renewable term. In this plan, policy will be renewed every year. Premium is paid for one year but policy is continued for specific time period ranging from 10 years to 30 years. Premium increases with every renewal. Chances of receiving benefit are higher.
Term insurance is popular than permanent life insurance because it is cheaper than the latter one. Term insurance may expire without any payouts. Because of this feature, cost involved is less in term insurance than permanent insurance.
Another popular term insurance is level term insurance where premium is fixed for a given period; period can vary from 10 to 30 years in the multiple of five years. Term insurance provides more coverage for the given premium dollar as the chances of payout are considerable less.
Renewal of term insurance becomes challenging if the life insured goes through a terminal illness during the term of the policy. In this case, policy is expired but the life insured is not able to renew it because of poor health condition. Due to this condition, survivor is not able to either buy another plan or renew the existing plan as he is no more insurable.
Term life insurance is purely a way to ensure comfortable life for the family when death takes away the earning hand. Term life insurance is also known as term assurance because the benefit is assured to the survivors in the event of death of life insured during the term period. It is helpful in taking care of temporary needs like mortgage debts, paycheck replacement etc in the absence of key bread earner. It is advisable to work out premium amount properly to ensure best returns from the investment made towards term insurance.