Understanding Life Insurance

Term Insurance

Term insurance is considered pure insurance and provides a pure death benefit. Term insurance does not offer any cash value or living benefits. Premiums paid for these types of policies purchase strictly death benefits. For this reason, term insurance policies are less expensive in the early years as compared to permanent forms of insurance.

Term insurance offers temporary life insurance protection for a specified period of time. This period could be as short as 1 year, or provide coverage for a specific number of years such as 5, 10, 20 years. It also could be purchased to provide coverage up to a specified age, such as 65. The premium is level for the duration of the stated term, which represents the average level of risk over the course of the policy.

It can expire at an attained age (Term to 65) or after a specified period of time (10-year term). The face amount is paid out to the named beneficiary if the insured dies during the specified term of the policy. The low, initial premium outlay when the insured is young can increase at renewal or upon conversion, and as the insured gets older, the policy can become more expensive.

Coverage can be written separately or with other types of insurance (as a rider) to suit individual needs. Rates charged are based upon underwriting class, the age and gender of the insured and upon the length of time protection is provided. For example, rates are higher for a 10-year level term than for a 5-year level term.