Life insurance term
Life insurance is a contract between the policy owner and the insurer, where the
insurer agrees to pay a sum of money upon the occurrence of the insured
individual’s or individuals’ death or other event, such as terminal illness or
critical illness. In return, the policy owner agrees to pay a stipulated amount
called a premium at regular intervals or in lump sums. There may be designs in
some countries where bills and death expenses plus catering for after funeral
expenses should be included in. In the United States, the predominant form simply
specifies a lump sum to be paid on the insured’s demise. Term life insurance or
‘term assurance’ provides for life insurance coverage for a specified term of
years for a specified premium. The policy does not accumulate cash value. Term is
generally considered “pure” insurance, where the premium buys protection in the
event of death and nothing else. The three key factors to be considered in term
insurance are: face amount (protection or death benefit), premium to be paid
(cost to the insured), and length of coverage (term). Much more common than
annual renewable term insurance is guaranteed level premium term life insurance,
where the premium is guaranteed to be the same for a given period of years. There
are many terms of such as 10, 15, 20, and 30 year terms life insurance. In this
form, the premium paid each year is the same, and is based on the summed cost of
each year’s annual renewable term rates, with a time value of money adjustment
made by the insurer. Thus, the longer the term the premium is level for, the
higher the premium, because the older, which is also known as senior life
insurance, more expensive to insure years are averaged into the premium. Most
level term programs include a renewal option and allow the insured to renew for a
maximum guaranteed rate if the insured period needs to be extended. Typically
this clause is invoked only if the health of the insured deteriorates
significantly during the term.
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