How does term life insurance work?


Term life insurance enjoys great popularity among the younger people because it is the cheapest type of life insurance that is on offer. As long as you are young, and have a healthy lifestyle, you can qualify for a company's best rates. This is also the most appropriate type of life coverage for those who want financial security until they pay off their debts or raise their children.

Term Life Insurance Premiums

One of the characteristics of term life insurance is that premium rates increase proportionately with age.

If you choose to buy an annual renewable term life policy, your premium will increase every year because of your newly attained age.

People who opt for level-premium term life policies, on the other hand, can lock in their premium rates for the entire policy period, whether it be 10, 20 or 30 years. The level-premium term life option is usually the better alternative, since renewing the policy every year can at one point become very expensive, and sometimes - even impossible to do.

Term Life Insurance Benefits

Term life insurance is a pure death benefit protection with little or no living benefits. It does not usually have a savings component or provide any dividends. The policy owner does not get any money back if the insured outlives the policy. Death proceeds are only paid to the beneficiaries if the insured dies within the designated policy period. The proceeds are not subject to federal-income tax but can be subject to estate tax.

Evidence of Insurability

A medical examination and a questionnaire filled in with detailed information about the applicant's medical history, health status and lifestyle, are required during the application process to determine the starting premium rates. After that, evidence of insurability is only needed with reentry term policies, and if the policy is non-renewable when the policy owner wants to purchase a new policy.

Proof of insurability is not required with annual renewable term policies, if the policy is guaranteed renewable, or when converting to a permanent policy.

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