Life insurance may be divided into two basic classes: temporary and permanent; or the following subclasses: term, universal, whole life and endowment life insurance.
There are three key factors to be considered in term insurance:
Level term policy features a premium fixed for a period longer than a year. These terms are commonly 5, 10, 15, 20, 25, 30 and even 35 years. Level term is often used for long-term planning and asset management as premiums remain constant year to year, allowing for long-term budgeting. At the end of the term, some policies contain a renewal or conversion option. With guaranteed renewal, the insurance company guarantees it will issue a policy of an equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time. Some companies however do not guarantee renewal, and require proof of insurability at the time of renewal. Renewal that requires proof of insurability often includes a conversion option that allows the insured to convert the term policy to a permanent one, possibly compelling the applicant to agree to higher premiums. Renewal and conversion options can be very important when selecting a policy.
Annual renewable term is a one-year policy, but the insurance company guarantees it will issue a policy of an equal or lesser amount regardless of the insurability of the applicant, and with a premium set for the applicant's age at that time.
Another common type of term insurance is mortgage life insurance, which usually involves a level-premium, declining face value policy. The face amount is intended to equal the amount of the mortgage on the policy owner's property, such that any outstanding amount on the applicant's mortgage will be paid should the applicant die.
A policy holder insures his life for a specified term. If he dies before that specified term is up (with the exception of suicide), his estate or named beneficiary receives a payout. If he does not die before the term is up, he receives nothing. However, in some European countries (notably Serbia), insurance policy is such that the policy holder receives the amount he has insured himself to, or the amount he has paid to the insurance company in total. Suicide used to be excluded from all insurance policies. However, after a number of court judgements, many insurers began awarding payouts in the event of suicide (except for cases where it can be demonstrated that the insured committed suicide solely to access the policy payout). Generally, if an insured person commits suicide within the first two policy years, the insurer will simply return the premiums paid as a compromise. After this period, the full death benefit may be paid in the event of suicide.
Term insurance
Term assurance provides life insurance coverage for a specified term. The policy does not accumulate cash value. Term is generally considered "pure" insurance, where the premium buys protection in the event of death and nothing else.There are three key factors to be considered in term insurance:
- Face amount (protection or death benefit),
- Premium to be paid (cost to the insured), and
- Length of coverage (term).
Level term policy features a premium fixed for a period longer than a year. These terms are commonly 5, 10, 15, 20, 25, 30 and even 35 years. Level term is often used for long-term planning and asset management as premiums remain constant year to year, allowing for long-term budgeting. At the end of the term, some policies contain a renewal or conversion option. With guaranteed renewal, the insurance company guarantees it will issue a policy of an equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time. Some companies however do not guarantee renewal, and require proof of insurability at the time of renewal. Renewal that requires proof of insurability often includes a conversion option that allows the insured to convert the term policy to a permanent one, possibly compelling the applicant to agree to higher premiums. Renewal and conversion options can be very important when selecting a policy.
Annual renewable term is a one-year policy, but the insurance company guarantees it will issue a policy of an equal or lesser amount regardless of the insurability of the applicant, and with a premium set for the applicant's age at that time.
Another common type of term insurance is mortgage life insurance, which usually involves a level-premium, declining face value policy. The face amount is intended to equal the amount of the mortgage on the policy owner's property, such that any outstanding amount on the applicant's mortgage will be paid should the applicant die.
A policy holder insures his life for a specified term. If he dies before that specified term is up (with the exception of suicide), his estate or named beneficiary receives a payout. If he does not die before the term is up, he receives nothing. However, in some European countries (notably Serbia), insurance policy is such that the policy holder receives the amount he has insured himself to, or the amount he has paid to the insurance company in total. Suicide used to be excluded from all insurance policies. However, after a number of court judgements, many insurers began awarding payouts in the event of suicide (except for cases where it can be demonstrated that the insured committed suicide solely to access the policy payout). Generally, if an insured person commits suicide within the first two policy years, the insurer will simply return the premiums paid as a compromise. After this period, the full death benefit may be paid in the event of suicide.
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