A term life insurance, also called pure life insurance, is a kind of insurance that provides payment of a stated death benefit if the policyholder dies before a specified term is up. Once the term goes expired, the policyholder can renew the insurance for another term, convert the policy to the permanent coverage (which may increase the premiums), or let the policy terminate, depending on different situations.
The insurance company will determine the premiums based on the value of the policy (namely, the payment amount), the age, gender, health as well as the life expectancy of the person when someone buys a term life insurance policy. Sometimes a medical examination is required as well as the driving record, smoking status, occupation, hobbies, family history and current medications.
Generally speaking, if the policyholder dies within a defined period of time, which is called the term, the insurance will pay the beneficiary a death benefit. Yet if the term expires while the policy holder is still alive, no benefit will be paid.
There are two basic types of term life insurance: the level term and the decreasing term. With a level term policy, the death benefit will not change no matter when the policyholder dies during the term. However, the coverage under the decreasing term policy will decline over the term at a certain rate. Most people opt for the level term policy to gain a guaranteed death benefit, yet sometimes the decreasing term policies can also be useful to protect personal assets or to ensure the continual function of a business.
The terms for term life insurances can vary from one to thirty years, usually in five-year increments. The most popular choice is a twenty-year term. If a longer term is selected, the policyholder usually has the option to pay a higher premium to obtain a guarantee that the premium will not increase during the term.
Term life insurance is usually suitable for those who just want to provide for their loved ones but have no time, budget, or inclination to use the policy as an investment. Before you choose the policy, it is recommended to consult an agent to help you determine what type of life insurance is the best to meet your specific needs.