What Is Term Life Insurance?

Introduction

When you buy into a Life insurance policy you enter into a contract with an insurance company that states, in case of the death of the insured, the beneficiary as named by the policy owner is entitled to death benefits. In most cases the insured person is the policy owner and he or she is the person who has to pay the premium to the insurance company. Life insurance is basically categorized as Term Life Insurance and Permanent Life insurance. Today we will take a closer look at Term Life and what it entails.

History

A term life insurance policy is the cheapest form of coverage and as such the most popular. This policy however provides only the basic form of cover for the insured without any savings being accumulated. For instance, the amount stated in the policy is what the beneficiary will receive as death benefits. In case the beneficiary dies within the policy period, he will be entitled to the policy amount. If however he lives on once the policy has expired, he will not get any benefits; not even the cash he has been paying as premium every year.

Another disadvantage of term life insurance is that the insured person is not permitted to withdraw the cash he has already paid on the policy even if wishes to cancel it in order to get the money for some emergency. In the same way if the insured dies only after the policy has expired, the beneficiary has no claim to any death benefit.

When you consider all these negative factors one wonders why anyone would want to buy term life insurance where you invest a monthly premium without ever being sure that you can reap the benefits. But, make no mistake because more people enter into term life insurance than whole life, primarily because of the cost factor and therefore it’s the only affordable type of insurance for low income groups. Term life premiums are much lower than whole life which is extremely high.

Those who buy term life insurance do so with the idea that in case they die before their children are big enough to earn their own living, the money they receive as death benefits could be utilized for their education and enable them to attend college. This might be the only monetary compensation they receive in case their parents pass away before time and they consider this as the only investment they can make on behalf of their children.

Features

Even term life insurance has different categories known as “Level Term” where the premium does not change during the policy period. “Renewable Term” which means the policy can be renewed when reaching the present term without the insured having to undergo any medical tests. “Convertible Term” allows the policy owner to transfer the policy into one of permanent life if he finds himself in a position to pay the higher premium and “Group Term” which is mostly provided by an employer for a group of employees and carries a lower premium which is usually deducted from the monthly salary.

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