TERM LIFE INSURANCE

Meaning

Term life insurance is a class of life insurance policy which provides insurance coverage for a certain term of years.

The implication of this is that the policyholder’s beneficiaries can only receive death benefits accruing to the policy if he dies within the time in the insurance policy. That is to say, if the policyholder dies while the policy is still active or alive. For example if the policy covers for a period of twenty years, the beneficiaries can only receive benefit if the policyholder dies within the 20 years.

Premiums in term life insurance

In term life insurance, many policies offer level premiums or the lifespan of the policy, for instance, for a term of 10 or 20 years. This category is often referred to as “level term” insurance policy. The premium payable is always specific or certain. And it may be monthly or weekly or otherwise depending on the agreement of the parties. However, in order to minimize loss, the insurance companies usually calculate or fix premiums on the basis of life expectancy, health or the age of the prospective policyholder. And to do this, there is usually an enquiry into the medical history of the policyholder.

Since the premium is certain, if the policyholder dies before the expiration of the term of years in the policy, the insurer will pay the benefits on the policy. However, if the policyholder dies after the expiration of the term of years in the policy, the insurance company will not be liable to pay any benefits. Notwithstanding, there may be a provision for the renewal of the policy after the expiration of the previous term. And such renewal will ordinarily be an upward renewal of the amount of premiums payable by the policyholder. For example, the premium for someone who is in thirties will definitely not be same with someone who is in sixties. This is because, the levels of their life expectancy and health statues varies.

Types of term life insurance policy

They are various types of term life insurance policy and they include;

1. Increasing term
2. Convertible
3. Mortgage term or decreasing
4. Annual renewal

Increasing term life insurance

In increasing term life insurance, there is an opportunity to increase the death benefits as time passes and also, increase in the premium payable as well. The advantage with this type is that it affords a policyholder an opportunity to pay lower premiums at a younger stage of life.

Convertible

In this type, the policy provides an avenue for conversion from term life insurance to whole life insurance before the expiration of the term in the policy. The benefit with it is that is that there will be no need for the policyholder to undergo a fresh medical examination neither is there any consideration attached to health conditions during the conversion.

Mortgage term/decreasing

As the name implies, this type is an opposite of the increasing term life insurance. This is because, the death benefit accruable to the policyholder decreases with decrease in time.

Annual renewable

This type is subject to renewal as time passes and each renewal attracts a higher premium payable and this is because, the policyholder is getting older as the year passes. However, the major advantage of this type is that its annual renewal is guaranteed.

Advantages

1. It provides the lowest premium outlay
2. It provides opportunity for younger policyholders to acquire more coverage at lowest costs.
3. It provides future protection or coverage through its renewable policies.
4. Affords payments of death benefits to policyholders without delay
5. It can be be used as collateral for loans
6. Its death benefits are not subject to estate taxes in certain circumstances
7. Beneficiaries’ proceeds are equally not subject to income taxes

Disadvantages

1. It only provides death benefits but does not make provision for build up of cash value
2. It is difficult to secure at old age
3. Its coverage ends when the term ends and the policyholder may have become uninsurable after the expiration of the term due to advancement in age.