Key Factors that Define Term Life Insurance

Term life insurance is the original form of life insurance. It is used to give life coverage to the subscriber who will pay a fixed charge either annually, biannually, quarterly or monthly.  After the expiry of that period, the client or the subscriber will have to either forgo the coverage or renew it at rates that might be higher. To define term life insurance is to understand it. Your understanding will save you money in the long term.

The advantage to the client is that they get life coverage. This means that the insured amount will be paid to his family in case he or she dies. You can purchase an appreciable amount of life insurance cover incurring the least expenditure, i.e. paying a lesser premium than you would have had to pay if it was a traditional insurance policy.

Define term life insurance as income replacement

To define term life insurance we should look at it purely as a means of replacing the income of the deceased in case of accidental death. Its function is similar to other kinds of insurance. It reimburses the person insured if the premium payments are up to date and the mishap occurring during the contract period. It does not promise to return your dollar premium amounts if there is no mishap during the contract period.

Primary coverage

The aim is to cover the primary financial responsibility of the insured person. This can include consumer debt, the educational expenses of children, care for the elderly and dependent ones, mortgages and funeral costs.

Similar products

To understand this in detail you can consider the case of auto insurance or home insurance. In auto insurance, the insurer will reimburse a claim to the insured in case the automobile has become involved in an accident. In home insurance the home owner can file for a claim of his insured amount only in case his home is damaged by any of the factors mentioned in the contract.

Mishaps within the contract period are covered.

The period for the simplest of term life insurance products is one year. Death coverage will be reimbursed by the insurer if the insured dies during this term. No benefit will be paid to the family of the insured if they die even one day after the completion of the contract period. The insured can choose to end the contract after their retirement when they think that most of their responsibilities can be covered using other means.

Premium payable

The premium to be paid is calculated based on the probability of the death of the insured person.

Drawbacks of the term life insurance

It may be that the insured has acquired a terminal disease during the contract period but continued to live. After the expiry of the contract, the contract will not be renewed by the insurance company citing his terminal illness. Defining term life insurance is vital to understanding and avoiding these pitfalls.