Term Insurance

Term insurance only provides a short protection coverage for a specific period. Thus, it is also known as temporary insurance. The period of coverage by the policy is called the policy term. One of the difference between term life insurance and endowment is that if the insured survives to the end of the policy period, nothing will be paid to the insured person. However, in the event of the death of the insured during the validity period, death benefits will be paid to the beneficiary.

 

There are 3 main types of term insurance in the market – Level Term, Decreasing Term and Increasing Term Insurance. Below are some of their common features:

1) There is no cash value. This mean that there will be no saving and investment element in the term insurance. Thus, if the insured are to terminate its policy during the term period, nothing will be paid to the person.

2) The insurance company will pay the death benefit (usually in lump sum) if the insured person dies during the specific period of the policy.

3) The term insurance is only used to provide cover for a specific period (short term life insurance) eg. 1 year or several year or until a specific age of the insured. The policy will lapses once it reaches the date of expiry. This also means that he/she will not get anything if he is to survive at the end of the policy term.

4) Since there is no accumulated cash value, you are also unable to take temporary loan from the policy.

5) There will also be no annual bonuses or dividends payout. This is because the term insurance is only used to provide the coverage against one’s death.

6) The term insurance will cease if the premium is not paid after the 30-day grace period. And since there is no accumulated cash value, you are unable to take up a non-forfeiture option to prevent the policy from lapses.

7) Not all riders are allowed to be attached to the term insurance. You will need to check with the insurance company for the exact policy term. However, a Total & Permanent Disability (TPD) benefit is usually attached to the basic life insurance policy. In the event of TPD, the insured will receive the payout in installment form – 10 percent for first year, 20 percent for second year, 30 percent for third year and 40 percent for fourth year.

8.) The term insurance’s premium is the lowest among other life insurances like health insurance and whole life insurance rates, etc. It is because there are no saving and investment elements. It is only used for protection for death benefits. It is because there are not saving and investment elements. It is only used for protection for death benefits.