Term Life Insurance

Term is a pure form of life insurance which simply provides coverage in the event of death. It’s also known as term assurance.

The protection is purchased for a specified term of one or more years.
As long as premiums continue to be paid, the policy will remain in force for the agreed term regardless of health or age.
If the insured person dies within the term, the death benefit is paid to the beneficiaries, unless exclusions apply.
The face value either remains constant or reduces each year. It does not accumulate cash like whole life policies.
The premiums can either remain constant or increase each year.
Once the term is up and no insured event occurs, the policy lapses and nothing is paid to the owner or beneficiaries.
There are different types of term insurance: Level Term, Annual Renewable and Mortgage Insurance.

Usually applied for a long term (ranging from 5 to 35 years).
Premiums remain constant throughout the period.
The cost of premiums is based on the total premiums which would otherwise be paid each year of the term length based on annual renewable rates. The longer the term, the higher the premiums. This is because insurance becomes more expensive as you get older and these higher costs are averaged into the overall term.
Due to the level cost, this type of policy is used for asset management and long term planning.
Some level term policies contain a renewal option, which can either be guaranteed or require proof of insurability.
The guaranteed renewal option enables the policy owner to renew the level term cover at the premiums set for his or her age at the time of renewal. The death benefit will be equal to or less than that set in the previous term.
Renewal options which require insurability will also have a conversion option. If the insured proves to be uninsurable, then they may be able to convert to a whole life policy, which is usually more expensive.

The policy lasts from year to year. Many insurers offer a guaranteed option of renewal without an insurability test (eliminating the requirement to show good health every year).
Without guaranteed renewal options, you may not be insurable after the year expires. For example, you may develop a terminal illness during the year of insurance. You would then be deemed uninsurable when it comes time to renew the policy and you would be left uninsured if that option was subject to proof of insurability.
Guaranteed renewability is usually promised for a number of years, up to 30 years. Insurers may provide this guarantee until the age of 95. However, the cost of term insurance after 60 is very expensive.
The death benefit will be equal or lower when the term is renewed.
The premiums will be applied in accordance with the insured’s age at the time of renewal – premiums steadily increase as you get older.
Guaranteed annual renewable premiums are higher than just paying for a single year’s coverage. However, there is more likelihood of a payout.

The premium remains constant throughout the term, but the death benefit declines (intending to cover the remaining mortgage amount).

Cheaper than whole life insurance (permanent or cash value) policies.
Higher coverage is more affordable than cash value policies, reducing the possibility of being underinsured in the event of a premature death. Policy owners can more easily afford cover for debts, mortgage or rental repayments, lost income, educational needs or other expenses.
Long term coverage (previously, these policies were only offered for up to 15 years).
You can choose to pay only for the period you require insurance (ie: up until your dependents are self-sufficient or up until you can rely on retirement income or savings). Generally, you don’t need protection for your whole life. Once you reach retirement, you can simply buy burial insurance to cover the end of life expenses.

Term policies do not build cash through investments.
There’s no tax deferred investment earnings. However, this can be achieved through other tax-beneficial investment vehicles such as the 401(k) or Roth 401(k) Individual Retirement Account (IRA) with lower commissions.
There’s no return of premium dollars if no claim is filed during the term. This is just like auto insurance for example.
Term policies are expensive and hard to obtain if you are in poor health or even if you have a family history of medical problems.
Once the term is up and you need further coverage, you will need to reinsure, which may mean different conditions and higher premiums. You may even find yourself uninsurable.
Premiums become very expensive after the age of 60.

No Load Life Insurance