What Is Term Life Insurance?

A term life insurance cover offers financial protection to policyholder and dependents for a specified time period. If policyholder dies within the said time span, insurer is liable to pay death benefit to dependents. It is for this sole reason that such policies cannot accrue any kind of cash value because of which they tend to be much cheaper than whole life insurance covers. And the death benefit received by dependents is exempt from any tax liability due to which such a policy is an attractive proposition for buyers.

Thus, in a way, term life insurance is rather like staying on rent than buying a house. Renters are required to pay rents every month only until the duration of lease with homeowners. Similarly, with term life insurance, policyholder is required to pay premium only till the term of the policy. And when the term gets over, policyholder can receive assured sum of the money as specified in the policy contract.

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Types Of Term Life Insurance Policy Options

Life insurance policies are available in 3 major types - whole life insurance, universal insurance and term life insurance covers. So, when exploring your options, it is important that you choose the right option for your specific circumstances. The main purpose of buying life insurance policy is to make sure that life is adequately covered and your family interests are totally safeguarded. And life insurance policies are specially designed for paying off unpaid principal mortgages and any other forms of loans or debt in the event of policyholder’s death. Therefore, it is vital that you have some understanding regarding different options work.

While term life insurance covers pay death benefit to dependents if policyholder dies midway through the term of his policy, the coverage can be accessed for a specified period of time only. That is the main why it is cheaper for many people. On the other hand, whole life insurance policy offers coverage throughout policyholder’s life.

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Term Life Insurance Policy Types

  • Guaranteed Level Term Life Insurance - In such type of term life insurance coverage, the premium levels remains the same throughout the duration of the policy. Policyholders are entitled to receive guaranteed death benefit subject to the condition that they are current on premium payments.
  • Annual Renewable Term Life Insurance - This type of a life insurance cover has very short term of 1 year but the coverage can be renewed by paying yearly premium. Such policies could be more expensive as compared to guaranteed level term life insurance covers.
  • “Return of Premium” term life insurance - Such kind of life insurance coverage may be ideal for people that want to secure minimum level of assured returns on their investment. The term “Return of Premium” implies insurers will refund to policyholders if they remain alive after completion of policy terms. It is due to this feature that such policies cost more than standard guaranteed level term life insurance covers.
  • Decreasing Term Life Insurance - In this type of life insurance policies, death benefit decreases with passing time although annual premium remains the same. It could be good option for people who need specific amount of money for some earmarked purpose like repaying a mortgage.
  • Modified Term Life Insurance - In a life policy of this kind, premiums may either increase or decrease over a period of time but there will be no change in level of financial protection.
  • Thus, buyers need to be careful in their choice at the time of exploring their alternatives.

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