Life insurance is a contract between an insurer and a policy owner in which the insurer promises to pay the beneficiaries of the insured in the event of his death provided that the policy owner pays a lump sum of premiums over a period. Term life insurance is the simplest type of life insurance. This kind of insurance provides protection coverage for a specified term – a particular number of years cited in the contract. This typically is pure risk insurance because it does not accumulate the cash value of the premiums being paid and that the insurer pays only in the event that the insured person dies within the specified term of coverage.
This type of insurance was designed to provide short-term life insurance coverage for people that have limited budgets. Premiums of this insurance are generally lower than whole life insurance premiums because both parties – the insured and the insurer, agree that there is no certainty that the insured’s death will occur within the term of coverage specified in the indenture. This insurance is purchased for the purpose of accommodating immediate goals such as loan payment, funeral costs, mortgages, and education fees.
Three variables are considered in term life insurance – value of protection, term of coverage, and the cost of insurance. Insurance companies offer insurance using a combination of these three variables. Term of coverage can be a term of one or two years; value of protection and cost of insurance may rise, remain, or decline.
Examples of this insurance include mortgage insurance and annual renewable term. The premiums of annual renewable term are based on the probability that the insured will die within the specified term. Mortgage insurance assures that mortgage loans will be paid by the insurer in the event of the insured’s death.
An insured individual who dies within the specified term of coverage of the insurance policy will have his beneficiaries be paid the insurance claims. However, if the insured does not die within the specified term, he or his beneficiaries will receive nothing from the insurance company. The difference of term life insurance with whole life insurance is that the policy owner is given the option of renewing or dropping the coverage by the stopping the payment of premiums.
The features of this type of insurance include convenience and affordability, flexibility, and renewable characteristic. The premiums of this insurance are relatively lower and the term of coverage may be just one or two years. It can serve as a risk protection for the financial obligations of the insured person. Financial resources will be readily available when the death of the insured occurs. Insurance company policies, mortality, changes of earning, and other factors determine the increase or decrease of the insurance premium.
At the expiration of the term life insurance coverage, the policy owner is given the option to review his resources and renew the insurance by paying a higher premium each year. In addition, this insurance can be converted to permanent life insurance provided the insurance company allows the conversion of such. This insurance is the most economical way of acquiring protection coverage at a very low premium payment.
