First off, you need to know what term life insurance is. What the term stands for will give you a better idea about whether or not you will need this type of insurance for yourself or a family member.
Important facts worth keeping in mind:
- Coverage is offered in exchange for a fixed rate of payments for a limited period of time. In essence, the term of the insurance coverage period of time! As soon as this period expires, customers must renegotiate their contract and set up a new set of terms in order to continue coverage.
- If an insured person dies during the terms of the term life insurance contract and was still currently paying the premium, the insured amount will be paid to the beneficiary.
- Term life insurance is the original form of life insurance. The many other forms of life insurance are based on the principles of a life insurance policy based on term coverage. In comparison to coverage plans like whole life, universal life and variable universal life, these coverage plans are based upon the lifetime of the individual, not a term contract.
- Term life insurance is usually taken out for an individual for income replacement needs of the beneficiary. Because everyone dies eventually, a term life insurance policy can and usually does, pay off for the insured individual in the event of their death.
- Term insurance is the cheapest type of insurance available. Based on a premium dollar amount, this premium is usually the cheapest to acquire.
- The way term life insurance works is very simple. If an insured accident happens that ends the life of the insured and, providing all premiums are paid on the insurance policy, the coverage will pay out the benefit amount to the beneficiary. If coverage is discontinued and the insured person dies, then no benefits will be paid out because the coverage wasn't paid for.
- There is more than one type of term life insurance available for purchase on the market today. Learning what these types are can help you make a more educated purchasing decision when it comes time to shop around for life insurance policies.
Different Types of Term Life Insurance
Term life insurance is available in a variety of different types. You can find a policy that fits your exacting requirements, based on your own individual situation, according to the terms and conditions set forth in the different policy structures. Not every term life insurance plan is going to be right for everyone, so different types of policies were created to give different situations a fair chance at quality insurance coverage. We are going to list the types of term life insurance available and you can review each option in order to understand which will be best for you:
Annual Renewable Term
This type of life insurance is good for one year. The death benefit gets paid only if the insured person dies within the coverage year of the contract. If even one day expires past this day and the insured dies, then no benefit amount will be paid out at all. The acquisition of this type of insurance is a rarity, due to the fact that the statistical chances of someone dying within a year period of coverage is very low. People who become terminally ill will very rarely take out this type of coverage because they become uninsurable if they don't die within the first year of coverage. After the coverage term expires, their terminal illness delegates that they are not eligible for a renewed coverage term.
Level Term Life Insurance
This form of life insurance is a much more common form of term life insurance. Many people acquire this type of coverage because it's much longer in duration than the annual renewable term coverage. The premium paid for this type of insurance is guaranteed for a set number of years, rather than the single year premium demanded by annual renewable term. The most common coverage terms are 10, 20, 15 and 30 year periods. The premium doesn't change and if the insured person dies within this time period, the beneficiary is paid the benefit amount. It's important to understand that if this coverage is taken out for 10 years, the premium amount will be lower than a 30 year period, although the price remains fixed and cannot change. This is because the 30 year premium will cover the harder to insure years when death is more expected to take place. The cost difference between a 10 year policy and 30 year policy will have different premium amounts. The 30 year coverage policy will have a higher premium and the 10 year coverage policy will have a lower premium.
Permanent VS Term
The difference between term life insurance and permanent insurance policies must be understood. A permanent insurance policy is scheduled to payout eventually, regardless of any circumstances. A term life insurance policy may or may not pay out based on the amount of years the insured person is covered. The likelihood of death occurring to the insured person is what the premiums are based upon and this is done using a mutually utilized mortality table. This mortality table provides statistics of death and what the probability is that death will occur before the next birthday. Insurance companies use this mortality table to come up with premium amounts that are fair and in-sync with what will keep their insurance companies alive and thriving.
So, to recap, term life insurance is coverage for a set number of years, after which a new policy must be drawn up in order for the insured to keep their coverage available. Permanent life insurance policies are active for the remainder of the insured person’s life, provided that all the premiums are paid and circumstances deem that the policy remains open.
Finding a term life insurance policy that is right for you will take some research. Find solid companies with a good track record of doing business with their patrons and you will be on the right track. It's all about reliability in the world of insurance. Will the company be around in the next five years? Answers to this question and similar questions will lead you to an insurance company that's worthy of your time and hard earned dollars.