Term Life Insurance Guide

By: EconomyWatch   Date: 26 May 2010

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Term insurance is a form of life insurance that offers financial cover, equivalent to the face amount of the policy, to the family of a policyholder in case the latter dies during the policy period. The period of this policy, which is also called term assurance, is limited and can range from one year to 30 years. Term life insurance is a pure form of insurance, which means it does not have a cash component. So, if a policyholder dies even a day after the completion of the policy term, his/her family members will not be entitled to any policy benefits.

Features of Term Life Insurance

Term life insurance is the simplest form of life insurance. Some of its basic features are:

  • Low premiums: The premium associated with this policy is the lowest, and hence most affordable, as compared to other life insurance policies.
  • Policy can be renewed: After the end of the term of this policy, a policyholder may opt to renew it for a specific period.
  • Premiums are not fixed: Every time a term life policy is renewed, the insurance company is sure to raise the premium of the policy. Moreover, a company can revise the premiums of this policy, based on certain factors.

Types of Term Insurance

The premium of term insurance is dependent on several factors, the term of the policy being one of them. The term of the policy is also a defining factor in distinguishing the various types of term life insurance:

Straight Term: The insurance premiums and benefits remain constant throughout the term of the policy.

Renewable Term: Can be renewed every time the coverage period lapses, irrespective of the status of the person’s health. In this policy, one can opt for annual renewable term, wherein the policy is taken for a year and is renewed annually for a total term ranging from 10 to 30 years.

Level Term: Ensures a fixed premium until the end of the policy period, which can range from five years to 30 years.

Decreasing Term: The amount for which you are insured falls over the course of the term of the policy. The premium, however, remains constant. This term policy is used when one needs to protect mortgage or income.

Convertible Term: Can be converted from a term policy into a permanent one.

Adjustable Premium: Allows insurance companies to offer lower premiums using less conservative estimates of mortality and administrative and interest costs.


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