Term life insurance

The insurance policy with a specific period is called term insurance. It has several basic characteristic. Firstly the period of protection is temporary in this policy. It may be from 1 year up to 20 years. The protection from the life policy expires at the end of the period if it is not renewed .this policy can be renewed. It means the coverage period can be added without evidence of insurability. The premium is increased at each regeneration based on the insured’s attained age.
Since term insurance is renewed without evidence of insurability generally insured’s in good health tend to drop their insurance as the premium increase. This selection may adversely affect the insurer’s benefits. To minimize adverse selection many insurers have an age limitation beyond which renewal is not allowed such as age of 70 however some insurers permit term policies to be renewed to optimum age as the premium rate is increased with the risk factor.
 Term life insurance policies have no cash value or saving’s element. Although some long term policies develop a small reserve it is used up by the contract expiration date. Term life insurance policies are also convertible in other types of life policies. While conversion the policy owner must also pay the difference between the premiums paid on the term policy and those that would have been paid on the new policy with interest on the difference at a specified rate. The purpose of financial adjustment is to place the insurer in original age.
 There are different types of term life insurance policy sold as per needs of the clients. The most common term life insurance policies are given below:

a. Yearly renewable term policy: this is the policy which can be renewed for successive one year periods without evidence of insurability. Premiums increase with age at each renewal date. Most such policies can be converted to a cash value policy as the requirement  of the policy holder.

b. Term policy with more than one year’s period: term policy can also be issued for different periods such as 5yrs, 10yrs, and or20yrs.ect. The premiums paid during the term period are equal but they increase when the policy is renewed.

c. Term policy up to age 65 year’s: a term life policy can also be issued expanding the period up to 65 years of age. At the expiry of the policy it can be converted to a permanent plan of insurance.

d. Decreasing term policy: it is a term insurance with gradually declining face value. The premium is equal throughout the period. In some policies the premiums are structured  so that the policy is fully paid for a few years before the coverage expires. For expires. For example a 20 year decreasing term policy may require premium payments for 17 years only. This method avoids paying a relatively large premium for only a small lament of insurance near the end of the term period.

e. Re entry term policy: this is a revertible term policy. Under this policy renewal premiums are based on select mortality rates if the insured can periodically demonstrate acceptable evidence of insurability. Select mortality rates are based on the mortality experience of recently insured lives. However to remain on the low rate schedule the insured must periodically show that she is in good health and is still insurable. The rates are substantially increased if the insured cannot provide satisfactory evidence of insurability.