wealthfactsheet-life_insurance-term

3. Term Insurance
Term insurnace policy as the name suggests is an insurance plan that is for the whole duration of the life of an individual. Usually it covers the standard 'Death' definition with some companies including 'Total & Permanent Disability' as an addition or being included in the basic Whole Life plan. And it covers for a specific term of the insured. Depending on the insured, the usual terms would be 5, 10, 15, 20 years, with the maximum entry age of an individual likely to be at 65 years of age.

Term insurance do not participate in profits of the insurance company, therefore the cost of term insurance policies are much more cheaper compared to say a Whole Life or Endowment policy.

Once the term of the policy is up, the contract expires and the insured does not enjoy any coverage at all. If the insured wants to buy another term policy, they have to re-apply, subject to the insurance company accepting the application all over again. This usually means health screening all over again.

Term insurance is mostly suitable for the following types of people:

1. People who wants to buy their first insurance policy.
2. For those who wants to provide protection for 'Family Income'.
3. For those who wants to provide 'Legacy' for the family.
4. For businesses who wants to protect the Key Person of the company.
5. For ensuring that Real Estate on mortgage is paid up on death of the insured.

Types of Term Insurance:
1. Level Term
It means that an insured usually choose a sum assured of their choice and a particular term. The sum assured will than continue to remain the same without throughout the term of the policy. One of its disadvantages is that it does not take into consideration of inflation.

2. Decreasing Term
This means that an insured who buys this type of insurance will find that the sum assured will decrease over time. This type of policy is usually more popular as an additional attachment to a basic insurance plan such as a Whole Life or Endowment policy.

3. Mortgage Decreasing Term
This type of policy is more like a decreasing term policy except that there is a condition to this kind of application. You must have an agreement that you have bought a real estate and are applying a loan from a bank. That is why it is called a Mortgage Decreasing Term insurance policy.

The pricing on the policy is usually pegged with the mortgage rate the bank charges the insured and usually the premiums insured pay is much lower than say if you were to buy a straight level term insurance, however is should be slightly more costly than the decreasing term insurance, but the decrease in the sum assured is considerably more slower than the conventional decreasing term insurance.

The duration of the policy is usually the term of the mortgage tenure. Once the mortgage tenure is up the policy usually expires.