Term Life Insurance: The Basics
As a novice to the world of insurance, many of us stand confused when it comes to the selection of life insurance policies that would really be beneficial in the long run. But, once you get a good grasp of the subtleties involved in the versatile life insurance policies, the selection of the right policy is not at all challenging. This article presents the need, types and benefits of a term insurance policy which would. further help you in deciding whether you really need it or not.
What is Term Life Insurance?
A term life insurance policy is a pure risk coverage option that is offered with inexpensive premium. It is deemed to be valid only for the term of the policy after which the continuation of it is likely to entail proof of insurability in terms of medical tests involving the insured and modification in the premium rates based on the probability of the insured dying during the tenure for which the renewal is requested.
The premium associated with term life insurance policies is pretty much lower in contrast to the huge premiums attracted by the whole life insurance policies. This difference arises due to the fact that the likelihood of payout comes in only in case of an insurance claim on the term life insurance during the period when the policy is in force. The only criterion for the insurance claim is the untimely demise of the insured in case of term insurance policies.
The factors that determine the premium for the term life insurances are the age of the insured at the time when the policy is taken, the tenure of the policy requested and the amount of coverage needed. The younger you are, the lesser is the premium. The higher the tenure or the coverage amount, the higher would be the premium associated with such a term life insurance policy.
Types of Term Life Insurance
The term life insurance policies can be categorized as Annual Renewable Term (ART) policy and Level Term Life Insurance policy based on the renewal and coverage tenure. Yet another type is the Decreasing Term Life Insurance in which the death benefits come down with time.
Annual Renewable Term Insurance is the means via which you get the risk cover/death benefit for a period of one year after which you might be asked to submit proof of eligibility and might also be associated with elevated premium rates for further continuation of the policy. Presence of any terminal illness at the time of renewal may ward off the possibility of renewal. The major challenge that comes up with the renewal is the necessity of a proof of insurability and a likely rise of premium rates at the time of renewal.
Level term life insurance is the risk coverage/death benefit that you get for a fixed premium that is paid during the entire tenure of the policy. Usually the tenure is 5, 10, and 25 years. Renewal policies need to be clearly understood before going ahead with these plans.
Decreasing Term Life Insurance is the type of term life insurance in which your benefits go down every year but the relatively low premiums remain at the same level throughout the entire term of the policy.
Affordability
Getting a cheap term life insurance is often easy. This type of insurance is affordable and popular since the payout rate is very low and happens only when the insured passes away during the period in which the policy is in force.
