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Term life insurance is a type of life insurance policy that lasts for a specific period. It is usually fixed for several years, or until the insured reaches a certain age. The insured will pay a premium to the insurance company until the term of the policy.
In return for the premium paid, the beneficiary is entitled to receive a tax-free, lump sum benefit if the insured dies within the policy term. Once the policy term ends, you will need not pay any premiums as the coverage also expires.
Keep in mind, term life insurance refers to the period you are covered. Typical time frames of a term life insurance plan include:
Few insurance companies let policyholders pick their own terms between 5 to 40 years to suit their specific requirements. Above mentioned are all examples of term plans where the monthly premium and death benefit will remain the same throughout the term.
Finally, based on unique applications, there are specific term plans:
Annual renewable term
It is a short-term life insurance plan where the premium is locked in for a year, and the policyholder has the option to renew it at the end of the year. It is also called the yearly renewable term.
Decreasing term policies
It is a term life insurance policy where the death benefit increases in the latter years of the plan.
How does a term life insurance policy work?
Term life insurance is a contract between you and the life insurance company. In the event of your death before the policy term, the insurance company agrees to offer a lump sum, tax-free payment to the beneficiary.
When identifying the premiums for coverage, life insurance companies will use detailed stats in the process. Additionally, this data is also used to assess the life expectancy and likelihood that the policy owner will have to pay out the full benefit. If the individual has a higher likelihood, the premium rate will be higher. If the payout to the beneficiary is lower, the premiums will be low.
In certain cases, the insured will be asked to undertake a medical exam to qualify for term life insurance. Unlike other life insurance plans, term life insurance has no savings component. This is one of the main reasons why it is an effective life insurance plan.
Is accidental death covered under term life insurance?
To put it simply, a term life insurance plan pays out for almost all causes of death. They do not differentiate between, accidental death, terminal illness, or natural death. Bearing this in mind, it is imperative to know that few plans will have exclusions for life insurance payouts. For instance, it can include deaths that happen in certain geographic locations, or if you have lied on your application etc.
What is the cost of term life insurance?
The cost of term life insurance is based on several factors such as personal, as well as details and depth of the policy coverage. It includes age, health and smoking status. When you are young, maintain good health and don’t smoke, the term life insurance plan is less costly. There is no one-size-fits-all plan, but our expert team can identify the best plan that suits your budget and coverage needs. You can rest assured; that you are in the right place when it comes to finding reasonably priced term life insurance plans.
By choosing us, you can save on insurance coverage if you choose annual premiums instead of making monthly premium payments. it is also 10 – 15% lower than your premium monthly payment. Speak to our advisor to find out more details.
What happens when your term life insurance plan comes to an end?
Based on your policy, you have the below-mentioned four options to proceed with coverage:
Let your coverage run out
If you choose to no longer continue with your term life insurance plan, you can let your policy expire and go on with an active plan.
Renew your plan
If you have chosen renewable term life insurance coverage with your existing provider, you can renew your coverage without needing to undertake a medical exam. However, the premium will be high.
Change your coverage
You have the option to convert your term life insurance plan into a permanent life insurance policy.
Get a new term life insurance plan
If your insurance plan is at the end and you still require coverage, you can apply for a new term life insurance policy to continue your coverage.
Frequently asked questions
Term life insurance is a type of life insurance policy that provides coverage for a specific term, typically 10, 20, or 30 years. It pays a death benefit to the named beneficiaries if the insured person dies during the term of the policy.
A person buys a term life insurance policy for a specific term and pays premiums for that term. If the policyholder dies during the term, the death benefit is paid to the beneficiaries tax-free. If the policyholder does not die during the term, the policy will expire without value.
Term life insurance provides coverage for a specific term and does not accumulate cash value. Permanent life insurance, such as whole life or universal life, provides coverage for the policyholder's entire lifetime and accumulates cash value.
Term life insurance is suitable for individuals who want coverage for a specific period and want to provide financial protection for their beneficiaries in the event of their death. It is often used by people with dependents, such as a spouse or children, to provide financial support if they were to pass away.
The cost of term life insurance depends on several factors, including the policyholder's age, health, coverage amount, and term length. Generally, younger and healthier individuals will have lower premium rates.
Consider your coverage needs, budget, and specific life circumstances when choosing a term life insurance policy. Consult an insurance advisor or insurance agent for help evaluating your options.