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TERM LIFE INSURANCE – TYPES


The type of life insurance that offers coverage in payments at a fixed rate for a specified time period is called term life insurance. There are three types under this type of insurance:

1. Annual Renewable Term –
   This is the simplest structure of term life insurance. It is valid for one year. The death benefit in the type is paid by the company in case the insured person died during the tem of one year. But there are no benefits paid even if the insured person dies a day after the term ends. The premium that is paid is based on the probability expected of the insured person dying within the one year term. Because the chances of the insured dying the following year are low, the insurer accepts the coverage especially because purchase of just one year of insurance is also rare. One main challenge with renewal of some policies is the requirement of proving one’s insurability. For example, the insured can be diagnosed within the term as having terminal illness but not die until the term expires. The purchaser would hence be uninsurable after the validity of the first term expires and hence will be ineligible for renewal of the policy or even to purchase a brand new policy. However, a feature called guaranteed re-insurability which is included in some programs, helps overcome this issue. This allows the person insured to renew their policy without having to prove insurability. Annual term insurance is a commonly purchased version of term insurance. The policy guarantees being able to continue each year until a given number of years and this period extend between 10 and 30 years or until 95 years of age in few cases. The premiums increase with every renewal and eventually the life insurance quotes are unaffordable as the rates exceed that of permanent policies.
   
   
2. Level Term Insurance –
   More common compared to annual term is this type of term life insurance in which there is a guarantee that the premium will be the exact same for a certain period of years. People mostly opt for a period between 10 to 30 years. Under this type, the premium that is paid by the insurer stays the same throughout the contract duration. The cost is fixed based on total cost of every year’s annual renewable term prices along with time value. Hence, longer the term is for, higher the premium and life insurance quotes. Most of the programs in level term insurance include renewals and let the insured get a renewal at a guaranteed rate that is a maximum in case there is an extension in the time period. Renewal is not necessarily guaranteed and reviewing of contract is necessary on the part of the insured to look if insurability is necessary for renewal of their policy.
   
   
3. Decreasing Term Insurance –
   Under this type, the amount of protection in death benefit u buy decreases over the chosen time period. The premiums mostly remain level through the relevant term. It is usually purchased by people who are financially obligated. These obligations decrease as time passes like mortgage, personal or business loan etc.

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