Life insurance plans typically can be divided into two groups: term life insurance plans and whole life insurance plans.
Whole life insurance stays in force for the individual’s entire life, and is often the pricier option between the two.
Term insurance plans, as the name implies, provide coverage only for a specified term. The premium you pay gives you coverage that can support you and your family should you pass away, contract an illness or become disabled during the term of your policy.
Such plans are designed to be simple and cheaper than other life insurance options. In short, life insurance is a pay-as-you-use insurance.
One very important thing to remember about term life insurance plans is that they do not accumulate wealth. This means that all the premiums you pay are only to fund your coverage, and there is no cash value in the policy at the end of it.
Planner Bee has prepared a detailed guide to term life insurance plans, which includes a comparison of the policies out there, and what could be best for you according to your needs. Read more here.
Some features of term life insurance include:
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 illnesses and premium waivers to waive off future premiums if the person contracts an illness or a disability.
Premium waivers are riders which are 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.
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, among many other shifts or changes in life stages.
So if someone wants more flexibility and to have coverage only for a specified period of time, term life insurance plans may make more financial sense. With a term policy, you don’t have to pay for more coverage than you need.
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 three 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 plan.
Read more: 10 Common Life Insurance Myths Debunked
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, and 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.
That also makes term life plans very easy to understand. They are simple: an individual pays a fixed amount for a fixed amount of time, in exchange for protection.
The premiums are fixed for the term so you don’t have to worry about price increases. This also means you know how much you will need to set aside to pay for your insurance plan, and allow you to budget for this need long ahead of time – or plan your finances for other uses when you’ve completed payment.
What are some factors to consider when buying term life insurance?
Most term life plans offer pretty standardised and similar coverage, but some individuals may be looking for coverage in a certain specific area. They can get this in the form of riders, which will give them added protection in that area without having to get another product on its own.
For instance, a person might meet with an accident that leaves them ith a disability that does not amount to Total Permanent Disability, but which nevertheless affects their ability to continue in a job they were previously in. In this case, a disability cash rider might provide an individual with annual payouts instead of just a single lump sum payout that will help to supplement the person’s income.
Other riders include protection riders for the insured’s child, or personal accident riders.
Level of coverage
The purpose of term life insurance plans is for protection: your coverage should be able to cover your liabilities, as well as your loved ones in the event that you are no longer around to provide for them.
To estimate how much coverage you’d need, one should consider factors such as your existing loans, as well as how many dependents you have that would need this coverage if you were to pass on. Their current lifestyle should also be considered.
Need help with calculating what coverage you need? Planner Bee has a calculator that will help you along. Try it out here.
It is important to remember that for term life insurance plans, you don’t get any money back when you terminate the plan, or when the plan expires even if there weren’t any claims. You were covered for a specified term, and that’s as far as it goes.