Brief term life insurance explanation. Life insurance companies offer
two basic types of policies...term life insurance and permanent life
insurance. By far the simplest in structure are the term life policies.
They are also favored by most people today because of cost. They are less expensive than permanent policies. That results with you being able to buy more life insurance for your dollar. That makes sense since life insurance was designed to protect your loved ones in the event of your death.
Let us therefore look at detailed term life insurance p0licy explanations. How do these policies work?
Term life insurance provides death benefit protection for specified periods of time. The periods range from 1 year to 25 or 30 years and some even up to age 65, age 80 or age 90.
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1 Year Term
The one year term policy is more popularly known as the
yearly renewable term
policy or the annual renewable term policy. As the name implies it
provides a death benefit for a very inexpensive level premium for one
The reason it is thought of as a one year term policy is that even though you can renew it there is a premium increase each tear if you choose to do so. For the first 5 years or so, even with the increase, the premiums are still quite inexpensive. After that period it can get quite expensive.
Upon your death the full face amount will be paid to your loved
ones, regardless of how you die other than by suicide. If you should
commit suicide within a certain number of years, usually 2 years, from
the date you purchased the policy the death benefit will be limited to
the premiums paid.
If you committed suicide after that 2 year contestable period the full face amount of the policy will be paid.
If you buy any these policies you have the option of converting to a permanent life insurance policy within specified periods of time.
5 Year Term
Now let us look at a
5 year term
life insurance explanation. The 5 year term life insurance policy is
considered by this author to be a better deal than the one year term
policy even though it costs a little more in premiums. The reason for
this conclusion is that the premiums remain level for the entire 5 year
This policy has a level death benefit as well which is paid upon the death of the insured. This type of insurance can be purchased as a separate policy but some companies also sell it as a rider to a permanent policy.
10 Year Term
Another participant among inexpensive short term policies is the 10 year term policy. Let us examine a 10 year term life insurance explanation. This policy is very similar to the 5 year level term policy but the premiums are a little more costly. You can keep this policy up to 10 years and the death benefit is paid to your loved ones in the event of your death.
15 Year, 20 Year, 25 Year And 30 Year Term.
The main difference between the two policies described above and
15 year, 20 year, 25 year and 30 year term
policies is that these policies can be kept for longer periods of time.
The face amounts and premiums are level throughout with these policies.
In some companies, however, the premiums of the 20 year term, the 25 year term and the 30 year term policies increase every 5 years. The first increase sometimes kick in after 5 years but in some cases the first increase occurs in 10 years.
Since I am giving you a term life insurance explanation I perhaps would be very remiss if I didn't mention riders that can be added to your policy.
Most life insurance companies allow you to add a waiver of premium rider to most any policy which says that if you should become disabled for usually a minimum of 6 months the life insurance company will step in and waive your premiums for as long as you are disabled even if it is for the rest of your life.
The accidental death benefit rider provides that if you should die in an accident the life insurance company will pay your beneficiaries twice the basic death benefit. If you therefore have a policy for $100,000 the life insurance company will pay $200,000...double indemnity.
I sincerely hope this brief term life insurance explanation will help you make a decision whether or not this type of life insurance would fit your needs.
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I recently did some research on the development of the 30 year term insurance policy over the years. What I learned was quite interesting.
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