What is Term Life Insurance?
What are the features of the Term Insurance Policy? Wondering what exactly is term insurance you role as the policy holder. Well, the main purpose of a term insurance policy is basically to provide financial stability to your beneficiary or family in the event of your decease or unfortunate event of the policy holder. This is in fact a means of financial protection to you as a policy holder and to your family in the event of your untimely death.
It can be very helpful if you would have a life time policy as compared to term insurance plans which only give protection during a particular period of time. A whole life insurance plan would provide cover for you and your family as long as you are alive. The policy will also pay out if you should die during this time period. The premium that is paid on such a policy is generally tax deductible. In the mean time term insurance plans pay out a specified amount in yearly payments to the insured.
The death benefits of the term insurance policy can be paid out once the insured person dies during the term. The premium payments are generally calculated based on the average monthly income of the insured person and his age. There is no penalty charge if the insured dies before the maturity of the term life insurance policy. However, this does not apply to the monthly premium payment as the term insurance policy would not expire until it was paid in full.
There are several types of policies one can avail and choose from, including term insurance policies, universal life policies, convertible term life insurance policies, renewable term life insurance policies, etc. Most policies give the option of a guaranteed interest contract. If for some reason the insured dies within the term, the premium payments would continue and the death benefit would continue too. If the insured pays an early surrender fee before the maturity date of the whole life or permanent insurance, then the cash surrender value of the whole life or permanent insurance would be forfeited.
Usually the premium for a term insurance policy with a renewable option is less expensive than those with a fixed premium. Generally, term insurance with a renewable option are not marketed widely. The term insurance premiums paid are based on the age of the insured person at the time of application and at the time of premium payment, if the age of the person had changed since the application date. Premiums are also determined by the choice of policyholder who may have a higher or lower premium amount based on their choices of lifestyle, investment preferences and other factors.
Permanent insurance, as the name suggests, provide permanent coverage. Although there are many policies of this type available in the market today, most of them come with an extremely high premium. This is because these permanent policies are normally much more expensive to insure. But the permanent insurance policies pay the same level premiums and have lifetime guarantees as level premium term policies
Many term insurance policies provide the option of increasing term premiums. There are some insurance companies that do not charge any additional premiums when the insured pays an increasing term. Other insurance companies offer increasing term premium only on policies that have been in effect for a certain period of time. The insurance company offers this facility to retain its clients but to increase the death benefit. While the insurance company does not change the premiums it increases the death benefit periodically.
The premium for a life insurance policy is determined based on the expected payout to the beneficiary when the insured dies. The life insurance policies pay the named beneficiary, the amount of death benefits paid during the term of the life insurance policy. Term policies pay for a minimum of 1 year during which the premium is paid by the insured. The premium amount increases with the increase in the duration of a term policy. The term policy will lapse when the insured expires or if the beneficiary does not receive the named benefit at the time of death. Thus a term insurance policy can be of two different types, either decreasing term or increasing term policy.