Protect Your Family’s Future With A Term Life Insurance Policy

A term life insurance is an investment that ensures your family is looked after even in your absence. It provides financial protection to your dependents in case of untimely death and secures your family’s future. The pay-off amount, called the death benefit, can be used to pay for major costs in the future, such as a child’s education, home loans, marriage expenses, etc. The coverage period, or period during which the term insurance remains active, generally spans 10 to 30 years. If the insurer dies during this period, the beneficiaries receive a fixed amount, which they can use to support themselves in the absence of the family’s sole earning member. On the other hand, if the term expires, the policyholder can either renew it for a consecutive term or allow the insurance to lapse.

But how does it work, and who benefits the most from a term life insurance policy? Let’s find out.

Key Features of a Term Life Insurance

A term life insurance is essentially a contract between a policyholder and an insurance company, whereby the latter pays the holder’s beneficiaries following the insured person’s demise. The primary considerations when buying insurance are the length of the term and the coverage amount.

Here are some key features of term life insurance:

1. It is affordable.
2. Term life insurance policies have a locked-in premium amount for a specific period.
3. The insurance policy does not offer any cash value under any condition.

Some policies also offer additional coverage in case of critical illness, accidents, or other medical exigencies. In such cases, however, the premium may be higher than for regular term insurance policies.

Also Read: The Beginner’s Guide To Understanding Insurance

How Does Term Life Insurance Work?

After purchasing the policy, the insurance company determines the premium to be paid according to the policy’s value or payout amount. Age, gender, health conditions, and habits also play a role. The company often conducts a medical examination and inquires regarding driving records, smoking status, profession and hobbies, prescribed medications, and family history.

If the insured individual dies within the policy term, their beneficiaries will receive the payout amount. The money is typically non-taxable and may be used to cover mortgages, debts, healthcare, and funeral costs. On the flip side, if the policyholder lives beyond the term specified in the policy, there is no payout whatsoever. However, a few exceptions to this rule allow for some amount to be claimed.

For example, the Return of Premium Term Insurance Policy (ROP) refunds all or a portion of the premium (minus GST) if the policyholder outlives the term. However, such policies tend to have higher premium amounts compared to regular term insurance because of the added benefits. The other, more commonly used option is to renew the coverage term of the life insurance. In this case, however, the premium will be recalculated according to the holder’s age at the time of renewal.

Term life policies provide substantial coverage at some of the lowest costs. However, buying a new term life insurance policy leads to higher premiums the older you get. Insurance companies typically set a maximum age for their term life insurance coverage, which ranges from 80 to 90 years old.

What Are the Benefits of Term Life Insurance?

Put simply, the most vital benefits of term life insurance are flexibility, simplicity, and affordability. Due to this, it is accessible to a far wider fraction of the population, who can also plan for financial responsibilities such as education and mortgage payments. The other advantages of a term life insurance policy are as follows:

1. Term life insurance policies are easy to follow and straightforward in their terms and regulations.
2. The policyholder is given the flexibility to choose the term length and death benefit, which are tax-free.
3. There are no penalties or extra fees incurred upon cancelling the term policy.
4. In most cases, policyholders are free to convert to permanent coverage at the end of the term.

Also Read: Health Insurance Glossary: Terms and Conditions You Must Know of

Who Should Buy Term Life Insurance?

Young Couples with Growing Families

Younger and healthier individuals benefit far more from insurance policy rates than older people with health conditions. Term life insurance can help young families with several responsibilities, such as paying off mortgages, student and car loans, childcare, and education.

Sole Providers With Dependents

Losing the only household income can adversely impact any family. With a term life insurance policy, the remaining members can avail of an income replacement to cover everyday expenses, future childcare and education costs, and health-related expenses.

Surviving Spouses of the Deceased

The benefits mentioned above can be highly advantageous to the deceased individual’s older surviving spouse or family members. However, the cost of premiums tends to increase the longer you wait to buy term life insurance.

Like all other financial policies, term life insurance policies have their benefits and drawbacks. For many, the major limitation of the policy is that there is no return on investment once the policy has expired. But it’s crucial to understand that the premise of term life insurance is to bring you peace of mind and safeguard against unforeseen future emergencies or accidents. This is why, despite the lack of return or cash value, buying a term life insurance policy suited to your needs and financial preferences is vital.