This type of policy provides coverage for a specific number of years in return for a predetermined premium. Temporary policy is considered to be ‘pure’ insurance and the amount of premium only provides coverage in the event of death, not any other events.
Three main factors should be considered for term insurance:
Face value – the benefit at death, also called the coverage;
Premium due – the insured cost;
Duration of coverage – the term.
Depending on the insurance company you will be offered a various combination of these three factors. The face value may or may not remain constant and the duration (term) can be for any number of years while the premium can also fluctuate in value. Further, there are three types of term insurance – level insurance, annual renewable as well as mortgage insurance.
Level term life insurance is a long-term policy, usually issued for a round number of years, like 10, 15, 25, etc. The specifics of this type are in the fact that its premiums remain constant thus you can plan and budget long-term. In the end it might be renewable or can be converted into another type of policy.
The annual renewable term is a 12 months insurance but with a guarantee from the insurance company that it will reissue a policy of equal or lesser value at the expiry of 12 months, regardless of the insurability of the policy holder and will determine the premium according to the age of the insured at the time of renewal.
Mortgage life insurance is similar to the level term in that it also has a constant premium but declining face amount. The face value in this type of insurance is equal to the amount of mortgage on the insured’s residence, so that in the event of the insured’s death the company pays the mortgage off. (more…)