What is Term Life Insurance and How Does it Affect Me?

Term life insurance is designed to be simple and cheaper than other life insurance options. In short, life insurance is a pay as you use insurance.

Term insurance as the name implies, refers to insurance for a term. You pay to obtain coverage that can support you and your family, should you pass away or contract an illness or disability during the term of your policy.

 

Some features of term life insurance include:

Period

The period of insurance is the term, which is fixed at the point of purchase. Terms can range from 10, 15, 20, 25 or 30 years. They can also refer to certain ages, 50, 55, 60, 70, 99.

When you’re looking at life insurance, make sure you know what period you’re looking at and how long you’re covered for.

Coverage or Payout Type & Amount

Coverage or Payout Type & Amount: The basic life insurance covers death and other add ons include disability coverage (TPD), critical illness and premium waivers to waive off future premiums if the person contracts an illness or a disability.

Premium waivers are riders which added to a plan. An example of a premium waiver rider would be a critical illness waiver rider. If added on to the term life insurance plan, this rider will be activated if the person insured contracts a critical illness.

The premiums will not be payable from then, and the plan will continue to cover the person. If this is the only rider attached to a term life insurance, no payout will be given to the person.

Flexibility

Many people may need less life insurance over time because their children will become financially independent, mortgages will get paid off, and they will retire on their savings, and many other shifts in life stages.

So if someone wants more flexibility and have coverage only for a specified period of time, term life may make more financial sense. With a term policy, you don’t have to pay for more coverage than you need.

Renewability

Some term insurances have a guaranteed renewal clause which allows you to renew your coverage at the end of the term, for another term. Just note that the new premiums will apply, and will often be as much as 3 times the original rate.

It’s important to note that some term insurances are not renewable at the end of term. This is usually denoted by “Term to age 55” which means the contract ends when the person is 55 and the only way to continue the coverage is to buy a new insurance.

 

Why Term Life Insurance?

Term life insurance is usually much cheaper than other types of life insurance such as participating life insurance. That’s because you’re only paying for the years that you need it, no monies or returns are given to you at the end of the term.

Participating Life insurance, on the other hand, means that the insurers are charging you a premium based on a pure cost of insuring that risk you chose to cover for.

The premiums are fixed for the term so you don’t have to worry about price increases. However, you don’t get any money back when you terminate the plan, or when the plan expires even if there weren’t any claims.

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