Term life insurance, or term assurance, is a product that provides the maximum coverage for a specific period with a limited budget. In fact, it is the cheapest policy to offer a pure death benefit, as there are no premium returns in case no death claim has been filed within the fixed term. Considering this, it is more or less similar to auto and homeowner’s insurance.
After the completion of the decided interval, this person can either drop the policy or continue by paying premiums. The amount for continuation depends on the insurance company norms, and risks associated with the insured person. Let’s take an example; if this person acquires a terminal illness during the period, then he/she will be charged with higher premium than the initial amount, in order to continue the policy.
Things to Consider
This product is for financially responsible people, who do not have sufficient money to purchase other high premium policies outright. A prospective student who has taken an education loan can purchase this insurance, during the course of study. Other examples are those who have mortgage, car, or other personal loans in their name. In such cases, the amount can be paid off from the death benefit, in case the insured dies within the term, before repaying the loan.
It is also opted for supplementing other policies during periods when financial obligations are on the rise, such as child raising and mortgage-paying years. This offers more security to the family members. If you are planning to buy this insurance, you can collect information regarding the term policies that will meet your security requirements.
In general, there are two main subtypes – annual renewable and level term life insurance. In the former type, the period is of only one year and it can be extended by increasing the premium amount, whereas in the latter case, the term is for specific durations like 5, 7, 10, and 20 years, or longer. Also, the premium remains the same during the stated interval.
Another new plan is called return-of-premium term life insurance, in which the premium amount is repaid after the policy expires. The premium for this plan is about 20-25% more than the other ones. After opting for a particular plan, you can contact a reliable insurance company and inquire about the premium, coverage amount, and period.
It is advisable to go through the policy documents regarding its flexibility (renewable and/or convertible). If you are non-smoking and below 30 years, then a USD 250,000 life coverage may cost about USD 300 annually. Whatever may be the plan type, the company might conduct a basic physical examination, prior to approving your proposal. This is necessary to make sure that the person who is applying is insurable.
In the physical examination, you have to fill your current age, height, and weight. You are also required to undergo basic laboratory tests like blood and urine tests. Based on the medical exam results, the premium amount can be increased if you have a higher risk of dying within the stipulated term.