Do you wish to purchase a Term Life Insurance Policy plan but have a hard time taking this decision just yet because you aren’t so sure about the details?
You need not worry any longer as you will be getting important questions surrounding this policy answered promptly in the following article.
How Term Life Insurance Policy Works
Table of Contents
What is Term Life Insurance Policy?
Term Life Insurance is simply defined as a temporary life insurance policy that provides your beneficiaries coverage on account of your demise at a fixed premium rate for a stipulated period of time.
There are mainly two kinds of Life Insurance Policies – Permanent/Whole Life Insurance policy and Term Life Insurance policy.
Term Life insurance policy differs from Permanent or Whole Life insurance policy in the sense that while a permanent life plan policy covers you at a fixed premium rate for the rest of your life, a Term Life Insurance plan does not but rather gives you coverage at a fixed premium over a specified time duration – say, between 10-30 years.
A term life insurance plan must be renewed after each expiration date in order for you to continue under the policy. If otherwise, you have the choice to either cancel the plan or change to a different life insurance policy – such as the Permanent Life plan through a rider.
The Term Life Insurance Policy is commonly chosen by many due to its affordable pricing in contrast to the Permanent Life plan which charges a higher premium.
Policy Features of a Term Life Insurance Plan.
As stated above, the Term Life Insurance policy offers coverage for only a specified period of time. Hence, the typical feature involved in this type of plan involves a temporary agreement. In Term Life Insurance policy;
- A fixed-rate of premium is set by the insurance company for you to pay monthly for a limited amount of time.
- The time of periods ranges between 10-30 years.
- You have to make a renewal on the policy after each time slot expires or you risk getting cancelled off the plan
- Premium rate price is cheaper compared to the Permanent policy as the plan involves a shorter amount of time
- Premium rate with each insurer and also on your renewal is affected by factors such as your age, gender, health status, among others
- You have the choice to convert to a Permanent Life plan later on through a convertible rider
Note that in Term Life Insurance, no refund is made after your plan expires.
Types of a Term Life Insurance Policy, Explained.
There are majorly three (3) categories of Term life insurance that exist. They are –
- Level-Premium Term Policy: This coverage has a fixed premium price rate for an equally fixed death benefit within a specified time limit. It is often the most chosen term life insurance policy option for many people.
- Annually Renewable Term Life Policy: This does not offer a fixed ‘term’ but is renewed year after year with a change in the policy premium in respect to the older age of the insured.
- Decreasing Term Life Policies: This group of policies offer a death benefit that reduces as time goes. The policy-holder is given a level-premium plan rate but with decreasing coverage for death benefit over time. This policy type is mainly used by an insured to pay off mortgages or short-term debts.
Making a choice on the type of term life policy to choose from depends mainly on the personal needs of the insured in question.
Factors that Determine Term Life Insurance Premium Price Rate.
Insurance companies are the decider when it comes to fixing you a Term Life Insurance premium rate. It is important you are aware of the fact that Term Life Insurance premium price rate varies indeed for everyone. So do not make the mistake of comparing someone else’s premium plan rate with yours.
Decisions of Term Life insurance companies on premium rates are based majorly on your age, gender and health status.
Younger people are usually given lower premium price rates as compared to older individuals due to the fact that there is a lesser likelihood of death occurrence and also an available longer period of time to pay for coverage among the young than older people.
Premium rates are also charged higher for men than women – the reason being that the death rate has been observed to happen often among men at an earlier stage than with women.
As it’s the norm, all Term Life Insurance company requires their policy-holders to undergo a medical examination before their plans can be confirmed. An unstable health condition attracts a high premium rate from the insurance company.
Other factors that can affect your Insurance Policy rate include – your occupation, family health history, smoking status and your general lifestyle in practice.
To get the best premium rates, however, it is advisable to purchase this policy at a younger age and to a fixed maximum amount of time. To get more information on the factors that can affect your Insurance policy premium price rate.
In conclusion,
Getting the rudimental knowledge on what a Term Life insurance policy is all about will enable you to understand how this policy works and guide you to making the right choice on your insurance decisions.
Read our article on CENTRAL ADVANTAGES AND DISADVANTAGES OF TERM LIFE INSURANCE POLICY to know more about the advantages and disadvantages involved in a Term Life Insurance plan and its further specific types.
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