TERM LiFE INSURANCE... The basics

Term insurance provides life insurance protection for a designated number of years--anywhere from one year to thirty years. It is pure insurance protection only as it accumulates no cash values and expires with no value at the end of the term. It is less costly than permanent forms of insurance as the premiums are calculated to cover the costs of mortality (death benefit of policy) and expenses of the company only without a reserve for cash values.

It should be noted that the shorter the initial term coverage, the lower the premium. A five-year term would be less costly than a ten-year term. If someone is in need of a large amount of insurance and does not have a lot of money for premium payment, term insurance would be an appropriate selection.

There are three types of term insurance. They are level term, decreasing term, and increasing term.

Level term and decreasing term are the two most common forms of term insurance.

Level term insurance provides for a level death benefit and a level premium. If a person purchased a $100,000 ten-year level term, the policy would pay $100,000 any time the insured person died during the ten-year period. The premium payment also would remain the same during the ten-year period. At the end of ten years, the policy would end without value.

Decreasing term insurance has a death benefit that decreases, but the premiums remain constant or level. If someone purchased a $100,000 ten-year decreasing term policy, the face amount of the policy would be zero at the end of ten years although the premium would stay the same during the whole period.

This becomes a costly form of insurance toward the end of the term. Decreasing term insurance is used frequently to cover decreasing financial obligations. To be assured the home mortgage is paid off in the event of the untimely death of a borrower, a person may wish to purchase insurance to pay off the debt. As the financial obligation on a home loan decreases through time, the necessary amount of insurance coverage to pay off the loan also decreases. This is mortgage redemption insurance.

Increasing term insurance is not as common as level or decreasing term. This type of term insurance has a death benefit that increases at periodic intervals. The amount of increase can be either a specific amount or a percentage of the original amount. Although this could be a separate policy, it is normally written as a rider to a permanent policy, such as the cost of living rider or the return of premium rider.

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