A term insurance is a temporary type of life insurance coverage which is usually provided for a temporary term. The period for which a term life insurance is generally offered ranges between 10-30 years. This kind of insurance is becoming increasingly popular as it is a more affordable way of providing coverage to the insured and the dependants in case the individual who is insured passes away during the term. There are several reasons which make term insurance so very popular, and in this article we will also uncover some lesser known facts.
Differences between Term Insurance and Life Insurance
Before moving on to the hidden facts about term insurance, it is essential to understand the key differences between term insurance, and regular life insurance.
Duration: The primary difference between term insurance and permanent life insurance is the duration for which they cover the insured individual and the dependants. The term insurance covers the insured for a predetermined duration usually ranging between 10-30 years. On the other hand, permanent life insurance covers the insured for life.
Premium Payments: As far as premiums are concerned, a term insurance plan is typically more affordable with fixed premium amounts. However, in case the insured individual wishes to upgrade coverage, the premium price would go up accordingly. On the other hand, a regular life insurance collects heftier premiums which remain consistent throughout the coverage period. A portion of the premium amount also goes towards the cash value component which is absent in term insurance plans.
Provisions: A term insurance is designed to only cover financial protection for the dependents if the insured person passes away during the term specified in the term contract. This type of insurance does not cover things like savings or investment. On the other hand, life insurance offers death protection, but also includes a cash value element.
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This element is useful because the insured individuals can access it through their lifetime in the form of a loan or cash withdrawal for various purposes.
Hidden Facts About Term Insurance
There are several factors which make term insurance unique, some of which are common knowledge, and some which remain unknown to a good chunk of people. Here we unravel some of the lesser known facts about term insurance which you may not have known.
- Customizing Coverage Value: The persons seeking insurance coverage can customize the amount of coverage provided by the policy in accordance with their financial plans and responsibilities. The option to customize the value of coverage allows the insured individuals to be at ease knowing that their dependents will be adequately covered. The customization also reflects on the premium sums, making it simpler to ensure that premiums are within affordability range.
– Joint Term Insurance: Few, if any, term-life insurers will provide joint term-life insurance for partners or couples. Couples have access to just one policy that caters for the two who hence lowers the cost of the insurance. These insurance acts as a safety net for both. It should be noted that because the death benefit can be paid out only one time, whether the first one to die is Paul or Mary is irrelevant.
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– Payout Only During Term: An important feature of the term insurance policies is that, for any payments to be made, the insured person must die before the end of the term. In case the individual lives longer an the noted period, no cash payments incurred.
– Flexibility in Terms of Insurance: Also, the policyholder can decide how long he would like to get the cover for while he is buying Term insurances. The insurer can modify the policy term that is applicable to the policyholder as long as it is within the range of 10-30 years, which is the common term of the insurance.
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This flexibility allows one tailor the cover to the one that will fit their needs and goals best and hence to manage their resources with ease.
- Premium Return Riders: Should an insured person outlive the policy term, the insurance policy providers may, under certain conditions, provide a return of the premiums paid by the insured. It can be necessary for people to speak with the insurance provider about the precise conditions under which the reimbursement can be given. For each supplier that provides this option, there may be differences in the way the refund is distributed.
- Riders for Living Benefits: In case the insured individuals are afflicted with specific terminal illnesses covered under the terms of the policy, they can avail living benefits under the terms of this rider. Under these terms, they can get financial help for medical needs provided the insurer offers this service.
- Lapse of Policy: Premium payment is essential for a term insurance plan. In case the insured individual fails to pay the premiums, the policy will inevitably lapse and the coverage benefits will be lost for the policy. The policyholders must, as such, remain on schedule for the payments and ensure, that in case they fail to pay the premiums in time, that they pay them within the duration of the grace period.
- Conversion Features: Some term insurance policies are convertible, and these come with conversion credits. The credits issued to the policyholders are critical as they can be used to balance any increase in premium sums when they choose to convert the term policy into a life insurance cover.
- Annually Renewable Insurance: This type of term insurance service is ideal for individuals that seek very short-term coverage. A key benefit of this type of insurance is that the policy can be renewed every year, without the need to undergo medical examinations each time. However, the downside is that as the policyholder gets older, the premium amounts keep incrementing. Those that do not wish to commit to a longer-term insurance for any specific reason can benefit from this policy.
Since there are so many unique features to a term insurance policy, it is best to consult with insurance providers and understand the unique terms that they offer. Consulting multiple companies is advised to ensure that you have ample information to choose the right service provider and right terms for your policy.