Term Life Insurance

Term life insurance is a policy that covers a set term; in the case of life insurance it will cover a person until the end of the term, as long as the premiums are being paid. With term life insurance the policy holder has to pay fixed, regular payments which will guarantee on their death that their beneficiaries will receive a set sum of money. This is the cheapest way to buy life insurance. The death benefit or principle sum will only be paid if the bearer of the policy dies. As there is no cash value built in, term life insurance can be classed as pure insurance. The life insurance company will base the monthly premiums on certain criteria that need to be fulfilled to issue the life insurance policy. They use statistical methods to work out the life expectancy and probability of the death of the person requiring the life insurance to maximise their earnings while protecting themselves against potential losses. Most life insurance policies have certain aspects that they will and will not cover and the degree of cover can be expanded to cover all eventualities.

There are various lengths of time that term life insurance can be taken out over. A person can take out a year of life insurance but that will only cover the policy holder for that year. Depending on the age and health of the person needing insuring the probability of that person dieing in the next twelve months could be highly variable. For instance an elderly lady who has had previous ill health will be more probable to die than a lady in her thirties who takes regular exercise. The premium will be based on the predicted events for the next year and the payments will vary. If you are just taking life insurance out year by year there may come a point that the life insurance company will no longer be prepared to insure the policy holder if health starts to fail. You can take out a guaranteed renewable life insurance policy which will cut down on the risks of non renewal. A step on from this type of term life insurance is a policy which is guaranteed to be able to be renewed every year for a set number of years, which is known as an Annual Renewable Term. The period can cover anything from 10 to 50 years and this way the death benefit is highly likely to be paid out. The premium each year may go up as they will be based on the annual renewal rates. With the premium potentially increasing every year it may put the policy holder off renewing the life insurance policy and it may be the time when the policy is actually needed.

A more common term life insurance policy is that of a fixed term which can be taken over any length of time depending on the age of the person. The premium will remain the same year after year and is calculated based on the length of the policy, the expected annual renewal rates for the period of cover, the probability of the death plus the adjustments for the value of money. This is averaged out over the term of the life insurance policy and then the payments are fixed. This is a much more structured way to take out life insurance as you know exactly what the premiums will be each year and you are guaranteed to be covered as long as you keep the premiums paid.