Term Life Insurance Articles
Why Term Life Insurance Operates Differently From Other Forms Of Insurance
2011-03-02
Although it may be unclear to the general public, term life insurance and whole life insurance, though widely known, are probably not as widely understood. In its simplest definition, insurance is an assumption of risk through its transfer. With life insurance, the risk is that the policyholder will die while the policy is in force. The policyholder is basically betting his or her premium dollars that he or she will die before the policy expires and the insurance company is betting to the contrary.
Since the insurance company is willing to assume the risk of the insured's dying while covered, a certain amount of money, called premium, must be charged, which the insurance company keeps if the insured is still alive at the and of the policy term. Each term life policy is written for a specific length of time, usually in years, which is called the 'term'. Common terms are 1, 5, 10, 20 and sometimes even 30 years. The term for a whole life policy is meant to be the person's 'whole life', although whole life, also called permanent insurance, is sometimes allowed to lapse through non-payment of the premium.
A term life policy is what's known as pure protection. A policy is written for a specific face amount or dollar value, due to be paid the beneficiary in the event the insured dies while the policy is in force. If the insured is still alive at the end of the chosen term the policy ends and must either be renewed or replaced for continued coverage. There is no cash value.
A whole life policy, however, has a cash accumulation benefit in addition to the stated death benefit. It can be looked at as a type of investment, with the cash accumulation amount accessible through a variety of means. Buying term life insurance is less expensive than buying whole life insurance with an equal face value.
A term life policy is most similar to a vehicle insurance policy in that if no claim is made during the term of indemnification all premium dollars paid go to the insurer. There is no cash value or refund due at the end of an uneventful term of coverage.
The most basic term policy is one-year term coverage. It is also the least expensive to buy, especially for a young person. Higher face value (death benefit) amounts can be secured for lower premium amounts, making it a strong contender for people who are financially constrained yet still have the desire to have life insurance coverage. A term life policy can serve many purposes, such as ensuring the payoff of a recently purchased home or automobile.
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Although it may be unclear to the general public, term life insurance and whole life insurance, though widely known, are probably not as widely understood. In its simplest definition, insurance is an assumption of risk through its transfer. With life insurance, the risk is that the policyholder will die while the policy is in force. The policyholder is basically betting his or her premium dollars that he or she will die before the policy expires and the insurance company is betting to the contrary.
Since the insurance company is willing to assume the risk of the insured's dying while covered, a certain amount of money, called premium, must be charged, which the insurance company keeps if the insured is still alive at the and of the policy term. Each term life policy is written for a specific length of time, usually in years, which is called the 'term'. Common terms are 1, 5, 10, 20 and sometimes even 30 years. The term for a whole life policy is meant to be the person's 'whole life', although whole life, also called permanent insurance, is sometimes allowed to lapse through non-payment of the premium.
A term life policy is what's known as pure protection. A policy is written for a specific face amount or dollar value, due to be paid the beneficiary in the event the insured dies while the policy is in force. If the insured is still alive at the end of the chosen term the policy ends and must either be renewed or replaced for continued coverage. There is no cash value.
A whole life policy, however, has a cash accumulation benefit in addition to the stated death benefit. It can be looked at as a type of investment, with the cash accumulation amount accessible through a variety of means. Buying term life insurance is less expensive than buying whole life insurance with an equal face value.
A term life policy is most similar to a vehicle insurance policy in that if no claim is made during the term of indemnification all premium dollars paid go to the insurer. There is no cash value or refund due at the end of an uneventful term of coverage.
The most basic term policy is one-year term coverage. It is also the least expensive to buy, especially for a young person. Higher face value (death benefit) amounts can be secured for lower premium amounts, making it a strong contender for people who are financially constrained yet still have the desire to have life insurance coverage. A term life policy can serve many purposes, such as ensuring the payoff of a recently purchased home or automobile.
