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Term Life
Insurance 
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What is Term Life
Insurance?
Term Life insurance provides life insurance for a
specific period of time, or "term". Other types of policies, such as Whole
Life, Universal Life, or Variable Life, are considered to be "permanent
insurance" and are designed to provide protection for the entire life of the
insured. Additionally, Term Life insurance provides only "pure" insurance
protection and does not have the savings feature typically found in most
permanent "cash-value" life insurance policies.
Term insurance might be
compared to an automobile insurance policy. While the auto policy is in force,
the insured enjoys the protection against loss from an auto accident. If no
accident happens, no benefits are paid under the policy. At the end of the
period covered by the policy, there is no refund of the premiums paid. Term
insurance works in much the same way. |
When is Term Life Insurance
Useful?
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Unlike the typical permanent
policy, the cost of term life insurance increases as the insured becomes older.
The savings feature usually found in permanent policies provides a "cash value"
build-up within the policy that allows for a constant, level premium. In later
years, the cost of the typical term life policy will far exceed the cost of the
typical permanent policy.
Term Life insurance is the most useful when an
insured is relatively young and the need is for temporary or short-term
coverage. Young, growing families with limited income and a high insurance need
represent one situation where term life insurance works very well. Situations
where a need will decline over time, such as with a home mortgage, are also
good candidates for term life insurance.
In some cases term life
insurance is teamed with permanent policies to provide the benefits of both
types of policies. Two such combinations are the family income policy and the
family maintenance policy. |
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Family Income
Policy |
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A permanent policy combined with a
decreasing term life policy. If the insured dies while the policy is in force,
benefits are typically paid for a specific term, such as 5, 10 or 20 years,
measured from the date the policy is issued. |
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Family Maintenance
Policy
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A permanent policy combined with a
decreasing term policy. If the insured dies while the policy is in force, the
insurer will pay income for a stated number of years, as measured from the date
the insured dies. |
The Language of Term Life
Insurance
| Level
Term: |
The amount of coverage
remains "level" for the life of the policy. Premiums will usually increase as
the insured gets older. |
| Decreasing
Term: |
The death benefit payable
decreases over time. Many decreasing term policies have level premiums. |
| Convertible
Term: |
A feature that can be
added to a term policy which allows the insured to "convert" the term life
policy to a permanent policy, usually without having to prove good health. |
| Renewable Term: |
This feature allows the
policy to be renewed at the end of the term without the insured having to show
that he or she is still insurable. |
| Primary Insured
Rider: |
Adds term insurance to a
permanent policy. This additional coverage is on the life of the individual
insured under the permanent policy. |
| Other Insured
Rider: |
Adds term insurance to a
permanent policy. The additional coverage is on the life of an individual not
insured under the permanent policy. This other person could be a spouse,
business partner or key employee |
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