Term life insurance is a type of life cover that provides a fixed rate of payments for coverage at a limited period of time. When that period expires, coverage is no longer guaranteed, and the client must take advantage of further coverage with different payment terms and conditions. If the person who is insured dies during the term of coverage, the benefit will go to his beneficiaries. This is the most cost-efficient way of purchasing a sufficient death benefit.
Term life insurance works in the same manner as other types of insurance; it accepts and satisfies claims if the premiums are up to date, and if the contract is still valid. It does not, however, return premium dollars if there have been no claims filed. A good example to use for understanding how this type of insurance works is by comparing it to an auto insurance contract; in the event that the insured car is damaged in an accident, the auto insurance will satisfy claims for this. However, in the event that the vehicle is sold and the owner wants to discontinue the coverage, the premium will not be refunded. This type of insurance is common for risk protection.
The primary use of term life policy is to provide coverage of financial responsibilities to the beneficiaries of the insured, since it is essentially a pure death benefit. These benefits include: dependent care, consumer debt, education for the dependents, mortgages and funeral costs. Most people prefer this type of insurance as it is less expensive as when compared to permanent life cover. Financial experts will advise those who do not have enough funds to get this type of insurance, until the time comes when they have amassed enough funds to protect the people that the insurance is supposed to protect.
The simplest form of term life insurance is called "annual renewable term". This insurance coverage is valid for only a year. If the insured dies during that year, the death benefit will be paid to the beneficiaries. However, if the insured dies a day after the end of that year, no benefit will be paid. The premium paid is dependent on the probability of the insured dying within that year. There are only a few people who purchase this form of insurance, as the probability of dying in a year is quite rare, except in cases where the insured is terminal.
The most common problem that people encounter with this type of insurance is the policy that requires proof of insurability. This means that if the insured acquires terminal illness within the year that the term is valid, but does not die until the term expires, he will likely be uninsured and will not be able to renew the policy or get a new one. This problem has been solved by including a feature in some policies that allow those who are insured to renew their insurance without proof of insurability.
The most common type of this insurance contract is the guaranteed level premium term life insurance. This type of insurance guarantees that the premium will be the same for a certain number of years, and the insured can choose from 10, 15, 20, or even up to 30 years.
A lot of the insurance companies that provide traditional life protection policies often refuse to provide life protection for seniors who have pre-conditions. A serious illness poses a high risk to your life, not to mention the fact that advanced age also contributes to that increased risk. These are the main reasons an insurance company will decline your life insurance application.
Having a pre-condition does not mean you are left without life coverage at all, though. There are many insurance companies that do provide insurance for people who cannot or do not want to undergo a health exam. This type of insurance, often called no medical life insurance, does not require a medical examination for qualification; however, this feature also makes the price of this type of insurance higher, compared to a traditional life protection policy.
There are two types of life insurance policies that do not require a health exam: guaranteed issue and simplified issue. Guaranteed issue insurance plan requires no medical tests and no medical questions; that means that you are approved for this insurance automatically, but you will have to wait two years before the policy starts to work. Simplified issue insurance requires you to answer a series of questions, but there is no medical examination, and the policy provides coverage from day one.