Term Life Insurance

Term life insurance insures a person for a limited period of time and at a fixed payment or premium. In this case if the policy expires after a period of time, it is the policy owner’s decision to continue with it or not. This is in contrast to the life term insurance in which the policy owner is insured till he reached 100 years of age or dies. In case of term life insurance the benefits of the policy is fixed and is paid to the beneficiary only in case the insured dies within the specific time period mentioned in the policy. The policy will not provide any benefit or returns other than that mentioned or agreed upon in the policy and is in contrast to the permanent life insurance policies in which savings is also one of the components to allow the insured wealth accumulation.

One of the questions that might pop up is why one would like to have term insurance in place of permanent life insurance. However, there are several benefits of taking up term life insurance which include:

  • The low premium amount which need to be paid and hence becomes much less expensive
  • A person may look for a policy which would expire around his retirement age so that by this time he would have saved sufficient amount of money to pay for its expenses and also the financial needs of his dependents.

The minimum term for this type life insurance is one year and the benefit after death is paid only when the insured is dead within that one year period. The benefits of the insurance will not be paid if the insured die even one day after the term expires. The premium for such type of term insurance is dependent on the probability of the insured dying within one year time.

Another type of term insurance is level term insurance in which the premium which need to be paid is same for the entire term which most commonly is 10, 15, 20 and 30 years. Most of the term life insurance policies have the facility of switching it to Universal life policy or Whole life policy. However, the same mortality tables are used to calculate the cost of the insurance and it is a known fact that premium for term insurance is less than the permanent insurance. The death benefit from these insurance policies is tax free.