Term Life Insurance May be All You Need

Term life insurance is a temporary life insurance covering specific period of time. In this type of policy the insured or the owner pays a premium for a period. The insurance company provides monetary benefit to the beneficiary in case of death of the insured during that period. It is the cheapest type of life insurance available to the general public. Usually the benefit received on death of the insured is income tax free.

There are four parties in term life insurance.

  1. The owner is the one who pays the premium.
  2. The Insured is the one on whose death will create a death benefit (face value) that will go to the beneficiary.
  3. The beneficiary is one who will receive the proceeds of insurance on death of the insured.
  4. The insurer is the company providing the insurance.

For instance, Jane pays $50 per month to ABC Company for insuring the life of John (her husband) for a period of 10 years. If John dies during the 10 years, ABC company will pay $50,000 to Jack (the son of John and Jane). Here the insured is John, the owner of the policy is Jane, the beneficiary is Jack, and the insurer is ABC Company. The premium is $50 and the face value of the insurance is $50,000. If John outlives the 10 year term policy, then ABC Company will not be liable to pay any money to any of the parties involved. Often the owner and the insured are the same- a person buys a policy to cover his or her own death and chooses a beneficiary, which is often a spouse or a child.

Term life insurance is a legal contract with terms and conditions and assumed risks. Sometimes there are special provisions like suicide terms wherein on suicide of the insured there is no benefit accrued to the beneficiary. Term life insurance is based on two concepts, theory of diminishing responsibility and Buy Term and Invest the Difference (BTID). In Term life insurance the responsibility or liability of the insuring company reduces as the policy reaches its maturity. Term life insurance is the cheapest type of insurance policy available because there is no cash value at the end of the period. Studies have shown that the mortality rate in term life insurance policies is as low as 1%. Hence the concept of BTID. Rather than going for permanent life insurance (where on the expiry of period the owner will accrue some cash benefit and there is a savings component in it) it is considered cheaper to buy term life insurance and take care of the savings components by investing in other areas. With the present market giving good returns on investment, buying a term life insurance is a more attractive option than permanent life insurance. Term life insurance is available for a period of 5, 10, 20 years etc. As the age of the insured increases the premium increases. The premium is calculated based on mortality rate which is usually dependent on age, sex and whether the person uses tobacco. Most companies provide annual renewable term where in the term can renewed annually however the premium increases annually.

Get a free quote for term life insurance today to compare rates from the nation’s top carriers. Remember that all companies have their own underwriting requirements so it definitely pays to compare.

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