Term Life Insurance Articles
4 Disadvantages Of Annually Renewable Term Life Insurance Policies
2010-12-04
Life insurance policies come in many forms, with annually renewable term life policies being just one of a wide variety of coverages available in the industry. People often buy life insurance policies for different, specific reasons, and these reasons will have a bearing on which type of policy is best for each one's personal needs. Some of the differences and similarities will be discussed here, including some specific disadvantages to buying annually renewable term life protection.
In simplest terms, life insurance is sold in two forms: whole life insurance and term life insurance. Each of these two types, however, comes in a number of variations. Whole life, as the name suggests, is written to cover the policyholder for his or her whole life. It consists of two parts, referred to as the face value and the cash value. The face value is the amount of money the insurer will pay out to the named beneficiary in the event that the policyholder dies while the policy is in force. Cash value is the amount of money that accumulates within the policy and this cash can be accessed in a variety of ways.
Term life insurance, unlike whole life, has a face value but no cash value. It is often referred to as 'pure protection', since it is only meant to provide a death benefit, without any associated accumulation of cash value. Term life insurance is always written for a specific term, which can be one year, five years, 10, 15, 20 or even as many as 35 years. One of the main determining factors for figuring the cost of a term policy is the age of the applicant.
Term life insurance is also available in a variety of plans including: annually renewable term life, renewable term life, level premium term, decreasing term and convertible term. The three factors to be considered in all term life insurance policies are: the face value (amount paid out in the event of death), premium amount (cost to the insured) and the term (length of time the coverage will be in force).
In an annually renewable term life policy the policy term is always one year. After the year is up the policy must be renewed to keep coverage in force. One disadvantage to this policy is that each year the premium amount will rise, since the insured is one year closer to eventual death. The policy is guaranteed renewable each year, but only to a specified age, usually 65. Two other disadvantages to this type of policy is that it offers no accumulated cash value and does not provide permanent life insurance coverage. Also, the amount of future premiums is unknown.
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Life insurance policies come in many forms, with annually renewable term life policies being just one of a wide variety of coverages available in the industry. People often buy life insurance policies for different, specific reasons, and these reasons will have a bearing on which type of policy is best for each one's personal needs. Some of the differences and similarities will be discussed here, including some specific disadvantages to buying annually renewable term life protection.
In simplest terms, life insurance is sold in two forms: whole life insurance and term life insurance. Each of these two types, however, comes in a number of variations. Whole life, as the name suggests, is written to cover the policyholder for his or her whole life. It consists of two parts, referred to as the face value and the cash value. The face value is the amount of money the insurer will pay out to the named beneficiary in the event that the policyholder dies while the policy is in force. Cash value is the amount of money that accumulates within the policy and this cash can be accessed in a variety of ways.
Term life insurance, unlike whole life, has a face value but no cash value. It is often referred to as 'pure protection', since it is only meant to provide a death benefit, without any associated accumulation of cash value. Term life insurance is always written for a specific term, which can be one year, five years, 10, 15, 20 or even as many as 35 years. One of the main determining factors for figuring the cost of a term policy is the age of the applicant.
Term life insurance is also available in a variety of plans including: annually renewable term life, renewable term life, level premium term, decreasing term and convertible term. The three factors to be considered in all term life insurance policies are: the face value (amount paid out in the event of death), premium amount (cost to the insured) and the term (length of time the coverage will be in force).
In an annually renewable term life policy the policy term is always one year. After the year is up the policy must be renewed to keep coverage in force. One disadvantage to this policy is that each year the premium amount will rise, since the insured is one year closer to eventual death. The policy is guaranteed renewable each year, but only to a specified age, usually 65. Two other disadvantages to this type of policy is that it offers no accumulated cash value and does not provide permanent life insurance coverage. Also, the amount of future premiums is unknown.
