Term life insurance offers coverage for a limited or specific amount of time. Once the insurance term has expired, the insurance policy holder can either discontinue the insurance policy or renew the insurance term annually by paying increasing premiums. This type of insurance offers many benefits.
- If the insured dies within the duration of the term life insurance policy, the beneficiary of the policyholder will get a death benefit.
- Term life insurance, unlike other types of life insurance, is viewed as pure insurance in the sense that it builds no cash value.
It works like most types of insurance. If no claims are filed, term life insurance does not require a return of premium dollars. Auto insurance, for example, will offer coverage in the event of an accident by satisfying claims against the insured. Home policy insurance offers coverage for the insured in the event of home damage caused by an earthquake or a fire. Health insurance is usually issued to potential clients who have no history of chronic illness. Even if events that cause damage to the insured person’s automobile or home do not occur, insurance companies don’t usually give refunds of premiums.
Term life insurance is basically a type of death insurance. It covers the financial responsibilities of the insured in the unfortunate event of the policyholder’s demise.
- The most rarely used and most simple type of term life insurance is for a time period of one year. This type of term life insurance offers a death benefit to the insured person’s beneficiaries if the insured dies within one year after the beginning of the insurance policy. If the insured dies after the one-year term has expired and has been unable to renew the insurance policy prior to death, then the insurance company need offer no death benefit to the insured person’s beneficiaries.
- One-year term life insurance is rarely used because the probability of the insured person dying within the year is low. Premiums are paid based on this unlikely probability.
- Term life assurance is when the insured person is proven to be “insurable”. For instance, if the insured person acquires a terminal illness within a one-year term of life insurance and does not die within that same year, the person will most likely be viewed as “uninsurable”. This is because the insured person cannot renew his life insurance because of the terminal illness.
- There is a benefit offered by some insurance companies that provides guaranteed reinsurability. This is especially useful for those who acquire a terminal illness within their term life insurance period, because it requires no proof of reinsurability to renew one’s policy.
- Annual Renewable Term (ART) life insurance is commonly chosen by insurance policy holders. This is a type of life insurance where the insured is offered a premium for one year, and renewal is guaranteed for a number of years. This usually lasts for 10 to 30 years and occasionally, until the policyholder reaches 95. The premiums for this type of insurance increases as the insured ages.
- Level term life insurance is even more common than ART. This type of life insurance offers consistent premium values for a number of years. This usually lasts 10, 20 or 30 years. The premium paid remains the same for the duration of the policy.