Term life insurance policy
A term life insurance policy covers the life of the policy holder for a certain period of time ranging from 1, 5, 10, 15 to 20 years. For this reason, this policy is also called temporary life insurance policy. It pays the cash benefits back to the policy owner once the term is over and in case the owner dies before the maturity of his term, the insurance company pays cash benefits to the beneficiaries. Once the term is over, the policy can not be renewed so there is no cash benefit, if the policy holder dies after the maturity of the term. Sometimes term policies are called pure insurances since there is no financial investment value and most of the premium goes to pay for coverage.
There are a number of different term policies. An overview of all is as follows:
Annual renewable term insurance: This policy is renewable each year up to a particular age limit. As you grow older, your chances of dying increases and accordingly the premiums go up each year with every renewal.
Renewable term insurance: This plan allows you to renew your coverage after the term of the policy is over, which generally vary from 5 to 20 years. Since your health condition may deteriorate during the term, your renewal power can be a valuable feature. As it involves more risk from the point of view of the company, Renewable term insurance costs higher than annual renewable term insurance.
Level premium term insurance: It ensures your premium will stay the same every year for the term of your policy.
Decreasing term insurance: With this policy, the cash benefits decrease each year while your premiums remain level during the term.
Convertible term insurance: It enables you to convert your term insurance into any of the other types of insurance policies, offered by the company.
Accidental Death Insurance: It covers you and pays out a cash benefit if you die in an accident.
Disadvantages:
It doesn’t provide a cash value for later life like retirement.
It doesn’t provide your whole life’s insurance protection.
