Term Life Insurance

Term insurance, a form of temporary life insurance coverage, may be appropriate for many families that foresee decreasing insurance needs during their lifetimes.

Term life insurance policies provide pure protection These contracts cover a person`s mortality risk and pay a death benefit only if the insured dies during the specified term. The term may be specified as a period of time from the inception date (such as one year, five years, 10 years, 20 years, or 30 years), or as a period of time ending at a specific age (such as age 65). If the insured lives beyond the term period, the policy expires and no benefits are payable.

Term insurance has many practical applications for covering insurance needs and it may be combined with other elements of a person's overall financial plan.

Since term insurance is temporary life insurance, the use of term insurance should be related to needs that are also temporary. The basic guideline is to cover temporary needs with term life insurance and permanent needs with permanent life insurance. If the prospect cannot afford sufficient permanent insurance, agents should temporarily cover the permanent need with term insurance rather than leave it unaddressed. The prospect may wish to convert the insurance to a permanent form when finances allow.

18 Term insurance has four basic characteristics:

1. Term insurance provides temporary protection for a specified period, such as one, five, or ten years, or until the insured reaches a specified age, such as age sixty-five or seventy.
2. Term insurance policies have no cash value or savings element. The insurance provides protection but no investment, and cash values do not accumulate.
3. Most term insurance policies are renewable and convertible. Insurers typically do not al
4. low renewal after a certain age, such as sixty-five, seventy, or seventy-five.
5. Term insurance premiums increase with the insured's age and are based on mortality rates. Because mortality rates increase with age, term insurance premiums must also increase.

Mortality rates are the probabilities of death at specific ages. Life insurers have been able to predict mortality rates with a high degree of accuracy for large groups of people.

Term insurance policies may be characterized according to their renewability and convertibility provisions. Term insurance policies may be renewable, or convertible, or both, for a specified number of years without requiring evidence of insurability.

Renewable Term

Renewable means that a term insurance policy can be renewed for additional periods without evidence of insurability.

Evidence of insurability is a requirement by a life insurer that the insured demonstrate that he or she still meets the insurer's underwriting standards by submitting a medical questionnaire or having a physical examination.

Renewable term policies may be limited as to the number of renewals, or to a specified age beyond which renewals will not be available. When a term policy is renewed, the premium for the renewal policy will be based on the insured's age at the time of renewal.

A term policy is renewable only if the contract includes a renewal clause. When a policy does not include a clause specifically granting the right of renewal, it is a nonrenewable term policy. A nonrenewable term policy is issued for a specified term and may not be renewed. An insured may always apply for a new policy at the end of the term, but there are no guarantees and the risk may be accepted or rejected based on current underwriting standards.