Everything in Life is Temporary

The simplest form of life insurance is term life insurance. It provides insurance coverage for a particular number of years, which is referred to as term, given a particular premium. It is viewed as pure risk insurance since it does not accumulate cash value and the premium pays only in the juncture of the insured person's death. It was formulated to make available short-term life insurance protection with people having limited budgets. The premiums of term life insurance are generally low because both the insurer and policy owner consent that the insured's death is not certain to happen within the term of coverage. Term life insurance is ideally purchased for immediate goals such as paying-off loans, funeral costs, college education, and mortgages.

Three facets are considered in term life insurance: value of protection, cost of insurance, and term of coverage. Insurance companies offer term life insurance using different combinations of these three. Value of protection may either rise or decline. The cost of insurance may remain or increase. Term of coverage may be a year or two. Examples of term life insurance are annual renewable term and mortgage insurance. Annual renewable term premiums are based on the probability of the insured's death within the specified term of coverage. These premiums can be paid each year for renewal of insurance.

An insured person who dies within the term of coverage will have his beneficiaries be granted with the insurance proceeds. However, if he does not die within the specified period, he will receive nothing. What differentiates term life insurance with whole life insurance is that the policy owner may opt to drop the cover by discontinuing payment of premiums.

The common features of term life insurance are: convenience and affordability; flexibility of premium; and renewable attribute. It is convenient and affordable since the premiums are relatively low and the term of coverage may be just a year or two. This insurance also serves as risk protection to financial responsibilities of the insured. The purchase of insurance assures the availability of resources when death occurs to the insured. Insurance policies have flexible premiums. They may be lower or higher depending on company policies and changes of earnings, mortality and experiences. When term of coverage expires, the policy holder has the option to renew the coverage by paying a premium that increases each year. In addition, some insurance companies allow this insurance to be converted anytime to permanent life insurance depending on the policies these companies have.

Term life insurance is the most cost-effective way of acquiring death benefit coverage and risk protection on a given premium.