Basics of Term Life Insurance

Term life insurance is also known as pure insurance. This is because it bears no cash value. Premiums used to fund term insurance are designated strictly to the cost of covering the life insurance component for a specific period. Another fundamental feature of term insurance plans is that they are essentially temporary insurance. Purchasing term insurance is called “renting insurance” for that reason. Term insurance typically does not provide as many optional supplementary benefits as permanent life insurance.

Like other aspects of life insurance, term life has various dimensions. Plans differ between companies in terms of plan structures and benefits. There are also different plan types that are associated with this type of insurance. The most obvious differences among term insurance plans reside within coverage periods.

Some term insurance plans cover a five-year period while others may cover on the basis of age, providing coverage up to age 85. What happens before or at the end of the coverage period depends primarily on the plan type. The different types of term life are as follows:

1) Level term life insurance:
This type of policy has a level death benefit over the period. Level term plans usually have a level premium associated with them.

2) Increasing and decreasing term life insurance:
These term plans have a variable death benefit. With increasing term life, the death benefit increases by a specified amount over the period. Premium increases generally accompany the death benefit increments. The opposite happens with decreasing term insurance. This type of policy is used for mortgage redemption and family income coverage.

3) Renewable term life insurance:
As the name suggests, this type of term plan can be renewed when the coverage period has ended. The policy virtually guarantees insurability through the renewal provision. The new premium rate is determined by the attained age, but the premium remains level for the additional term.

4) Convertible term insurance:
This type of term life has a clause that allows the policy owner to convert the policy to permanent insurance without having to provide evidence of insurability. The clause may specify that the policy must be converted before a certain period. The premium for the converted policy would be determined by the age of the person or the death benefit would be reduced to match the current premium.

5) Refundable term insurance:
Refundable term is a non-convertible term plan that allows for a refund of all premiums paid if a claim is not presented by the end of the period. This plan is a lot more expensive than a non-refundable term insurance plan for the same period. The premiums are refunded without interest once the coverage period has ended. Refundable term life plans may seem attractive but are not economically viable compared to either a non-refundable term plan or permanent life insurance.

Temporary insurance makes insurance a lot more affordable. These plans are the most basic form of insurance. Cash-value plans developed long after term insurance plans to meet changing needs of the population. Even though term insurance is seen as a waste of funds, this is not always the case. The harsh reality is that not everyone can afford cash-value policies or are willing to spend much behind life insurance. Term insurance endures as a viable alternative to permanent life insurance.