What is Term Insurance?
If you're in the market for life insurance, you may be wondering What is Term Insurance?
Term life insurance provides life insurance coverage for a specified term of years for a specified premium. The policy does not accumulate cash value.
Term is generally considered "pure" insurance, where the premium buys protection in the event of death and nothing else. Whereas, permanent, or whole life insurance, provides protection and cash value grows inside the policy.
The three key factors to be considered in term insurance are: face amount (protection or death benefit), premium to be paid (cost to the insured), and length of coverage (term).
Various life insurance companies sell term insurance with many different combinations of these three parameters. The amount of life insurance coverage can remain constant or decline over time. The term can be for one or more years (1, 5, 10, 15, 20, 25 or 30 years). The premium can remain level or increase.
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A common type of term life insurance is called annual renewable term. It is a one year policy but the insurance company guarantees it will issue a policy of equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time.
Another common type of term insurance is mortgage insurance, which is usually a level premium, declining face value policy. The face amount is intended to equal the amount of the mortgage on the policy owner’s residence so the mortgage will be paid if the insured dies.
Guaranteed renewability is an important policy feature for any prospective owner or insured to consider because it allows the insured to acquire life insurance even if they become un-insurable.
Finally, the level term life insurance. Level term provides protection for a specified period of time – such as 20 years. The policy benefit remains the same and the policy premiums remain the same for the entire term of the policy. This way, you are guaranteed, as long as you pay the premium you have a certain amount of coverage for a certain premium, and period of time.
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