All About Term Insurance

Term life insurance is also known as temporary insurance. It provides protection against the risk of dying too soon. The period of coverage with term insurance is for a fixed period. When the time has expired, there is no more coverage. It is renewable each year as long as the required premiums have been paid. This renewal continues all the way until the owner reaches 65.

Term insurance is different from other types of life insurance like universal and whole life. Term has no cash value while universal and whole life insurance does. The cost you pay for the term covers the risk of death accepted by the insurance company. Term insurance premiums are much less than those for the same amount of permanent insurance.

Generally, there are three types of term insurance protection available. Level, increasing and decreasing term offer basic protection at a low cost to the consumer. Each type maintains a level premium that remains constant for the term period.

Level term insurance is designed with level premiums and a death benefit that stays level. The level death benefit period is fixed as a number of years. Level term 10, level term 15, level term 30 each indicates a product that has premiums that stay the same up to the end of years. At the end of the term of years, the insurance company will increase the premiums until the product expires.

With decreasing term, the death benefit goes down during the fixed term period. It is purchased with a death benefit that equals the amount of a corresponding debt. Its premium is also level and is used as a way to protect a lender against debt default. A bank may require the purchase of a 30-year decreasing term to protect against mortgage default due to death. Credit life insurance is another term that refers to decreasing term.

An increasing term has a death benefit that rises annually over the term period. A portion of the premium is used to increase the death benefit each year. This increase provides a product that keeps pace with the growing value of the insured's assets. A common feature associated with increasing term is return of premium or ROP. This feature allows the policy owner to receive a refund of premiums paid after the end of the term period.

Term insurance policies have a conversion feature. This conversion feature permits the owner to exchange the policy for a universal or whole life policy. This exchange takes place with out having to provide proof that you are still insurable. Term insurance is used to provide group benefits. Group life is an affordable benefit that employers can provide to its employees. The conversion feature makes group life insurance a good employee benefit.

Term insurance is a low cost solution and provides needed protection. Younger people who need insurance but can not pay for permanent protection are ideal buyers. Its lower cost is also a way to protect the insured's ability to buy permanent insurance later, in case their health changes. Term insurance is a good way to meet a person's insurance needs.