It is evident that one day death will come to us and we have to leave our love ones behind. We can never stop it but use the uncertainty in our favor and buy a life insurance. Out of several types of
life insurance policies, term life insurance is popular among masses who want insurance for short times and who have smaller budgets. It is best in this situation because term life insurance provides more coverage then what you pay for.
The nature of term life insurance is temporary and at the time of insured's death the benefit is paid to the
beneficiaries in a lump sum form.
Types of term insurance policies
Two basic forms of term life insurance exist in the market. One is the level term and the other is the decreasing term. Level term insurance is now taken by most of the people in place of previously popular annual renewable term policy.
Level Term
Level term is available as a yearly renewable, 5 year, 10 year, 15 year, 20 year, 25 year, 30 year or specified age which is usually 65. The reason for its popularity is because it pays the same amount of benefit if death occurs at any time during the specified term. The premium is same throughout the term and is calculated by taking the average of the years of term. It becomes low if the term is in young age as the young person are healthy, easily insurable and are given low premium rates unlike old people.
If taken for a longer period the term life insurance premium becomes higher because the later age years in which insurance is expensive are also averaged in the total value of the premium. Term level policies may also have a renewal option for extending the period of the insurance.
Annual renewable term
The one year term was once the most popular term insurance but now most people take out term insurance polices. The annual renewable term is the simplest form and the death benefit is paid if death occurs within the year. The premium charges are simply calculated by taking the probability of a person's death in that year according to his physical health and other factors plus the profits and other cost of the
insurance company.
There is a problem with one year term policy. What if the insured gets into a serious ailment such as cancer or some other disease during the term? After the term is over it will be very difficult for him to get insurance with a low premium. Still many people want to have the term insurance so what insurance market has done is created another product Annual renewable term policy.
In annual renewable term policy the premium paid is only for that year but the coverage can be continued to the next year as well up to certain years. This limit can be up to 95 years of age, or 10 -30 years. The premiums keep increasing each year and up to certain age it becomes unviable to have because the premium paid becomes equal to the face value.
