Term Life Insurance, Its Varieties, Benefits And Drawbacks

Precisely why term life insurance? A person who has no dependents and is financially protected might not have a need to buy life insurance, as long as sufficient money is available to cover funeral expenses and any other outstanding financial obligations. But the individual who does not have financial security and has family responsibilities must always consider acquiring life insurance. That is why term life insurance is probably the most important financial selections anyone with young dependents, a mortgage, and is just starting out financially can make.


Term life insurance is called “term” since it gives coverage for a distinct time period or term (most often 1, 5, 10, 15 or 20 years). Because of this, it’s also called “temporary” insurance. If death occurs during the term, the policy pays cash benefits to the beneficiary. However, once the term is over, and if the policy is not renewed, the coverage ceases. If death happens after the coverage ceases, no cash benefits are paid out.


Term insurance is probably the most straightforward type of life insurance and the easiest to understand. Sometimes it is called “pure” insurance, because the policy has no financial investment value and most of your premium goes to pay for coverage, with merely a small amount used to pay the insurance company’s costs. If you’re looking for the maximum amount of coverage for your dollar, term life insurance provides you with the most “bang for your buck”.


There are many types of term life insurance: Level term insurance is designed to pay out a sum of money if the policyholder should pass away during the policy’s term. The sum assured is assured and stays unchanged throughout the term. Decreasing term life insurance i.e. mortgage protection cover is where the sum decreases throughout the policy. It is frequently used to protect capital and interest repayments on a mortgage. Renewable term insurance is the kind wherein on the expiration date there is an option to continue without a health review. Convertible term insurance is a level term insurance using the option to revert to whole life or endowment insurance. Increasing term insurance is the kind wherein due to inflation the value of money declines each year. As a result, this form of insurance combats that with an escalating sum assured.  Last is index linked term insurance in which some insurance companies provide the option for the premium to be increased every year in relation to the Retail Price Index.


Term life insurance has its advantages and disadvantages.  To enumerate its advantages, a term life insurance pays a death benefit to the beneficiary you name.  It will cover your final expenses and offer a lump sum for your dependents.  It covers you for the full amount of life insurance you choose.  It can be convertible and renewable depending on the policy.  It gradually increases annual premium as you get older and it usually works well to meet temporary insurance needs.  However, to enumerate its drawbacks, a term life insurance does not give a cash value account for some later stage such as retirement and it doesn’t supply you permanent life insurance protection.

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