Term insurance is a type of life insurance that provides coverage for a certain period of time. If the insured dies during the time period specified in the policy and the policy is active, or in force, a death benefit will be paid to the nominee.
Term insurance is very low cost as compared to other life insurance products. Term insurance has no cash value. In other words, the only value is the guaranteed death benefit from the policy. Now a day’s various companies offer Term Insurance with Return of Premium. In this type if policy holders successfully completed term of Policy contract company return the whole premiums back to the policy holder.
Why buy term insurance?
In general, term insurance is purchased to replace your income if you die, so your loved ones can pay debts and living costs.
Because of its low cost, compared to other types of life insurance, term life is a best option of life insurance to cover the risk of sudden mishap of life.
How does term life insurance work?
When you buy a term life policy, an insurance company promises that it will pay your beneficiaries a set amount if you die during the policy’s term. In exchange, you pay a premium to the company for the duration of that term.
Keep in mind these key points about term life insurance:
- The calculations behind life insurance rates are all about life expectancy. That's why life insurance costs more as you get older.
- If you outlive your policy term, the insurance ends and you must buy another policy if you still want to carry life insurance. However, the annual premium for another policy could be quite expensive because you're older and an insurer will take into account health conditions. That’s why it’s important to choose a suitable term length early in life.
- The calculation of Risk cover and liabilities need to be calculated time to time and need to buy an additional term life policy if you find a term life policy isn't sufficient.
What does term life cover?
The death benefit amount you choose at the start of your policy doesn't have an assigned use. Typically, these funds are used to cover funeral expenses, debts, mortgage or replace lost income of the insured party; however, the death benefit can be used by beneficiaries in any way they choose.
Choose your beneficiaries carefully. There is no legal requirement for them to spend it on the items that you planned. You can also choose multiple beneficiaries, allowing you to split up the money between family members the way you want. Any requirement for how the money should be spent, such as paying off the mortgage or college tuition for children, should be specified in a will.
