Term Life insurance is basically a form of life insurance that offers a fixed rate of premium payments over a fixed period of time, which is the term. If the specified period is exceeded then the insured person will either forego his claim or alter the terms of the earlier insurance package. However in the event that the insured person succumbs within the relevant term of the life insurance agreement then the insurance company will pay the relevant dues to the stipulated beneficiary.
Term Life Insurance is different from whole life insurance in that you will only pay premiums within a specified period of time. In whole life insurance premiums are to be paid for a whole lifetime till the day the insured dies. Term insurance can be used by beneficiaries of the deceased to cover financial obligations that range from mortgages, burial costs, tuition fees and health care costs. This is primarily because term insurance is pure death benefit.
There are a number of types of Term Life Insurance packages available in the market. Here we shall discuss the two major ones. The first one is the Annual Renewable Term insurance package. It is characteristically the simplest form of term insurance. In this package benefits are paid to beneficiaries in the event that the insured dies within the insured term/year otherwise the death benefits are not paid. In the event the insured does not die within the insured the year the insurer may decide either to renew or decline renewal of the term insurance depending on proof of insurability. Proof of insurability is a take into account changes in the insured’s condition. For example if the insured contracted a terminal malady within the term but did not die this may make them uninsurable when the current term expires.
The other type of Term Life insurance is level term life insurance. It is different from annual renewable insurance in that the contract runs for a specified period of time. The most common types range between 10 and 30 years. Premiums are fixed over the specified contract period, if at the end of the contract period one decides to renew the contract for another level term that is also plausible.
Term Life insurance contracts are cheaper basically cheaper compared to lifetime insurance contracts. This is majorly because there is always a possibility of the term expiring before benefits are paid which is not the case with lifetime life insurance packages: Benefit payments must be paid.
