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Inside this Article
Term
Life Insurance
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Term life
insurance is pure insurance protection that pays a
predetermined sum if the insured dies during a
specified period of time. On the death of the
insured, term insurance pays the face value
of the policy to the named beneficiary. All
premiums paid are used to cover the cost of
insurance protection.
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The term may be
one, five, 10, 20 years or longer. But, unless
renewed, the insurance coverage ends when the term of
the policy expires. Since this is temporary insurance
coverage it is the least expensive to acquire. A
healthy 35 year old (non-smoker) can typically obtain
a 20-year level-premium policy with a $250,000
face value, for between $20-$30 per month. Here are
the main characteristics of term life insurance:
- Temporary
insurance protection
- Low cost
- No cash value
- Usually
renewable
- Sometimes
convertible to permanent life insurance
Types
Of Life Insurance
What
Are The Types Of Term Insurance Policies?
Term
insurance comes in two basic varieties—level
term and decreasing term. These days, almost everyone
buys level term insurance. The terms
“level” and “decreasing” refer to the death
benefit amount during the term of the policy. A level term
policy pays the same benefit amount if death
occurs at any point during the term.
Common types of level term are:
- yearly- (or
annually-) renewable term
- 5-year renewable
term
- 10-year term
- 15-year term
- 20-year term
- 25-year term
- 30-year term
- term to a specified
age (usually 65)
Yearly renewable term,
once popular, is no longer a top seller. The most
popular type is now 20-year term. Most companies will
not sell term insurance to an applicant for a
term that ends past his or her 80th birthday.
If a policy is “renewable,” that means it
continues in force for an additional term or terms, up
to a specified age, even if the health of the insured
(or other factors) would cause him or her to be
rejected if he or she applied for a new life
insurance policy.
Generally, the premium for the policy is based on the
insured person’s age and health at the policy’s
start, and the premium remains the same (level) for
the length of the term. So, premiums for 5-year
renewable term can be level for 5 years, then to a new
rate reflecting the new age of the insured, and so on
every five years. Some longer term policies will
guarantee that the premium will not increase during
the term; others don’t make that guarantee, enabling
the insurance company to raise the rate during
the policy’s term.
Some term policies are convertible. This means that
the policy’s owner has the right to change it into a
permanent type of life insurance without
additional evidence of insurability.
Return of Premium
In most types of term
insurance, including homeowners and auto
insurance, if you haven’t had a claim under the
policy by the time it expires, you get no refund of
the premium. Your premium bought the protection that
you had but didn’t need, and you’ve received fair
value. Some term life insurance consumers have
been unhappy at this outcome, so some insurers have
created term life with a “return of premium”
feature. The premiums for the insurance with
this feature are often significantly higher than for
policies without it, and they generally require that
you keep the policy in force to its term or else you
forfeit the return of premium benefit. Some policies
will return the base premium but not the extra premium
(for the return benefit), and others will return both.
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