Introduction
Many people often defer from taking life insurance as it involves cost. But remember life is unstable. An unfortunate event like the death of the sole breadwinner can adversely affect the family's future. A backup plan is thus always needed for the financial security of our family. Taking a life insurance policy can act as a financial cushion for your loved ones in days of need.
There are many life insurance companies providing different types of policies available in the market. Each policy varies in terms of price and features. While permanent life insurance policies offer lifetime coverage, they are also expensive. Term life insurance, on the other hand, is cheaper and provides coverage for a specific period of time. It's the smart way to save money.
So let's understand what exactly Term Life Insurance is and how can you benefit from it? Here we will discuss all the details on term life plans and how they work. Read on.
What is term life insurance?
Term life insurance is the simplest and most affordable type of life insurance that provides coverage for a specific period of time, or "term." if the insurer dies within the "term", the insurance company would pay the beneficiary a set amount of money equivalent to the sum assured. If the insurer outlived the term, there would be no pay-out.
Important features of Term Life Insurance
Term life insurance is also known as pure protection insurance, meaning that it covers you for a specific event (in this case, death). It is the only death benefit insurance available in the market. Unlike whole life, universal life, and variable universal life, it has no savings or investment component. It's purely indemnity coverage, which means that the policy pays out only if you die while the policy is in force.
2. It is called Term Life Insurance as it provides life coverage for a specific period of time. Term life insurance is ideal for people who want coverage for a specific period of time, such as 10 or 20 years.
3. Term life insurance is one of the cheapest policies available. As it does not have an investment component, the premiums are cheaper than other insurance policies. It is affordable as the insurer has to pay death claim only. The cost of a term life policy varies depending on many factors such as your age, health and smoking habits (if any), the amount of coverage you need, and the term you choose. Generally speaking, if you choose a longer-term, your premiums will be higher.
4. Buying term life insurance is an easy and quick process. A typical plan lasts for 20 years and is renewable every five to ten years thereafter until the policyholder turns 85 or 90. You can choose to renew your term life policy when it expires so you have a backup in case something happens. However, you don't have to. You can also choose to take out additional term life insurance at the end of the "term," or let your coverage lapse.
5. Term Life Insurance comes in different types. A Level term insurance provides a fixed death benefit for the life of the policy but the premiums will increase as the insurer gets older. On the other hand, decreasing term insurance has uniform policy premiums but the death benefits decrease over time. As for permanent life insurance policies, they offer lifelong protection. But are they are expensive as they come with an investment component that builds cash value over time. Thus, the beneficiary receives enhanced death benefits.
6. Term life insurance coverage can be made comprehensive by adding riders. These riders provide additional benefits, such as waiver of premium (in case you become disabled), critical illness coverage, waiver of premium due to critical illness, accidental death benefit, and others.
Bottom line:
Term life insurance is a very affordable, simple, and reliable way to protect loved ones from the financial hardship that may come with your death. In addition to providing a financial cushion for family survivors, term life insurance provides you with peace of mind as it gives you the opportunity to prepare for your future. And if you don't die within the term, you still end up with life insurance that will protect your family financially for as long as they need it.