Posted: Sat Jun 10, 2006 3:41 am Post subject: Term Life Insurance Policy: types and benefits
Life insurance can be defined as a means to protect the policy holder's family in the event of his demise. And indeed it is an essential component for the future family planning.
Term Life insurance policy is probably the basic form of all Life Insurances. It provides the insurance coverage for a specific term of years with a specified premium. Over here the premium buys only the death protection and nothing else.
There are three key factors in the term insurance:
a) face amount - the protection or death benefit.
b) premium to be paid - the cost to the insured.
c) length of coverage - the term.
Insurance companies sell the Term Life insurance with many combinations of the above three parameters:
1. The face amount can remain constant or decline.
2. The term can be for one or more years.
3. The premium can remain level or increase.
Term life insurance provides an affordable protection and sometimes it also comes with a guaranteed premium. If the insured dies while the policy is in force, the face amount is paid to the named beneficiary. The insured can renew the coverage at a higher premium at the end of the premium guarantee period.
The reason why the Term Life is an ideal choice for individuals is that, it has an initial lower premium rate compared to the permanent policies. And the premium can be increased at each renewal.
We can define the two common types of term life policies namely -
1. Yearly Renewable Term: For this type of a policy the insurance company assures to provide a policy worth an amount equivalent or lesser to the insurability of the insured and also a premium fixed according to the insured's current age.
2. Mortgage insurance: The flat premium rate of this type of a policy reduces its face value. Incase the policy holder passes away the mortgage will be paid, since the aim of the policy is to match the face amount with the amount of mortgage on his residence.
Term Life insurance, is one of the oldest form of life insurance and for a long time it has catered to the needs of the life insurance consumers. But it is loosing its popularity fast.
Term life policy has certain demerits that can be attributed to its diminished importance in the insurance market.
As the name suggests, the term life policy covers the policy holder only for the term specified in the plan. If the owner of the policy dies within this period, his bereaved family will receive the death benefit. Otherwise, the amount that was paid towards the premium will get forfeited.
In its purest form a term life policy only offers the death benefit, and no other advantages, which implies, that it doesn’t build any cash value.
Also, the term life policy coverage cease when the policy holder fails to continue with the premium payment.
With the developments in the insurance market, the purest form of term life plan no longer exists, instead, the policy designers have developed term life plans which may suit better to the needs of the modern day’s insurance consumers. Today, some term life plans also offer cash-value benefits to the policy holder.
Hi all, its true that the importance of the term life plans have reduced immensely, but still in certain circumstances the term life plan may come useful.
One form of term life plan is the Private Mortgage Insurance plan, which covers the mortgagee for the period of the mortgage loan.
The private mortgage insurance allows the policy holder to purchase the plan for the term which equates the term of the mortgage. The concept is to protect the family's interest at the event of the pre-mature demise of the policy holder.
The term life plan is also affordable to many, who otherwise can't purchase a life plan. Another advantage of the term life plan is that the premium rate may remain unaltered for the tenure of the policy.
Thanks to all!
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Term life policy has certain demerits that can be attributed to its diminished importance in the insurance market.
And quite rightly the whole/universal life plans are gaining in terms of marker shares, though term life plans are the cheapest form of life insurance policies.
However, there are different types of term life plans available in the market.
Level term policy: for level term policies, the death benefit remain constant for the entire term of the plan. However, the premium paid may remain constant, increase with time or remain constant over a certain period and change afterward.
Annual renewable term plans: the premium amount with this type of policy increases annually.
Decreasing term policy: the death benefit associated with the plan decreases with time, and so the amount payable as premium. This kind of policy is typical for individuals with certain financial obligation, which importance will decrease with the time, like-mortgage, personal/business loans and so forth.
There are several other sub-forms of term policies available in the market, even with some term plans now you can actually build a cash-value, which is payable to the policy holder at the end of the term.
'Convertible term life' is one of the many form of term life plans available to the modern day's insurance consumers.
Convertible term plans allow the policy holder to convert the term life plan into a whole life within the term of the plan without any medical check. The premium paid for the policy, however, may remain the same.
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One popular form of term life insurance is Private Mortgage Insurance, which protects the lender's interests when the debtor defaults to repay the loan.
Obtaining the PMI has almost become mandatory for homeowners making less than 20% of the property value as down-payment at the time of applying for the mortgage, thus enabling more and more people to materialize their dream of buying home.
I have to respectfully disagree with on point Fabiana made.
Convertable term does allow you to switch to a permanent plan without medicals. However, the premium is based on the cost of the permanent plan at standard rates charged by the company by a person of the attained age of the insured. Not the rates of the old term plan.
Convertable term is a good feature to have as it gives more options in the future and usually is not much more expensive - if at all
Hope that helps
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