What is Term Life Insurance ?

Posted by admin on Oct 5, 2010

It is wisely to allocate our budget for insurance in each personal financial planning that we make. As we know our life contains risk - internal or external - and insurance could provide us a 'secure feel' against those risks. Especially if we are the only one provide incomes and money in our family budget. Something happen to us will affecting other family members. Surely, we do not want it happen, right? :)

A life insurance is a basic protection should have. This type of insurance should be on top of your personal financial planning, for protection purpose. You may chose the traditional type of insurance. Or a unit-linked type, most famous type of insurance nowadays. Many companies could provide you both types, all have to do is selecting insurance wisely.

Sometimes because of its lower price than the whole-life type, people usually decide to buy a term-life insurance. So what is term life insurance? This post is try to explain you further.

Term life insurance is basically a “no frills” type of life insurance. It is a life insurance for a specified duration limit, or time. You buy a specific amount of coverage for a specific time period by signing a contract. You pay for that coverage period and at the end of the term the policy expires. For example, the term might be until children are grown, or until college is paid for, or until retirement.

Term life insurance is the least expensive available insurance policy and allows you to spend a lot less and use the extra money in a better investment. It does not build up cash value and the premium normally increases as the policy owner gets older. Usually term life insurance covers a specific term such as term of 1year, term of 20 years or term of 30 years.

If you die while the policy is active, term life insurance provides a stated benefit for it; and your survivors will be paid the agreed upon amount. However, the policy does not provide any returns beyond the stated benefit and once the policy expires, the insurance coverage ceases and the insurance company keeps the money. Some term insurance policies give you the right to renew at the same rate for multiple years, while others do not. The former are generally a bit more expensive.

Term life insurance is most suitable for you, if you are:
• in need of coverage for a limited period of time,
• young and looking for lower premiums,
• buying a home or car, where the financial burden of a loan will disappear in time.

Term life insurance policies must be renewed when each term ends. Before buying a term life insurance policy, you should ask about the renewal provisions for the protection of your future insurability. There are some typical choices:
• Annual Renewable-----the premium go up each year.
• Level Term-----the premium stays the same for specific period like 5, 10, 15, or 20 years, then increases sharply.
• Automatic Renewable-----you'll have to pay more for this feature.

Some other options on term life insurance policies may include:
• Re-Entry------it requires a lower premium than an automatically renewable policy. You can renew at the same low rate offers to new customer; but you'll have to pass a physical examination. If you've developed any health problems, your premium could go up and cost more than an automatic-renewable policy.
• Convert-able term------you’ll have the option to convert to a whole life insurance policy in later years.

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