Term Insurance Contract
Term insurance is the type of whole-life insurance contract in which the sum assured is paid to the beneficiary in the event of the death of the man on whose life the policy is based.
In other words, it is a contract between a policyholder and an insurance company that states if the insured person passes away within the time period of the policy agreement, the insurer will pay a death benefit to the beneficiaries named on the policy.
This policy gives you full-time life protection within the time range stated on the policy (agreed period of time). If unfortunately, you died within this period, your insurer pays out an agreed premium or death benefit to your nominees. The main people that should think of buying term life insurance are parents and young professionals
What is a Term Life Insurance Contract?
Term life insurance is a type of life insurance policy that provides cover for a specified period of time. If the man on whose life the policy is based dies within the period the contract is still valid or in force, a death benefit will be paid to the insured beneficiaries.
Term insurance is always less expensive when compared to permanent life insurance Unlike most types of permanent insurance, term insurance has no cash value. In other words, the only value is the guaranteed death benefit from the policy.
Take, for instance, a man who takes a loan from a bank, repayable says in five years decides to take up a 5 years life term insurance with respect to the amount of loan collected, from an insurance company.
It is guaranteed that should the man die before the loan is retired within five years the creditor does not suffer any financial loss. The two important decisions you have to make before accepting to buy term life insurance cover are
(a) You consider the time length of the policy: This implies the period or the number of years the policy is going to last.
(b) The amount of coverage: You should beware of the amount of coverage that is within your capacity so it won’t affect your income level.
Difference between term insurance and Whole life insurance
In principle, there is no upper time limit for term assurance. In practice, however, the period of contract is relatively short, say, up to 5 years or a little longer. For longer periods policyholders rather convert it into another form of insurance.
Term life insurance is a contract entered into not for the direct benefit of the family as such but rather as a guarantee (collateral) for a loan received by the man, in this case, it is more of a financial deal. is always for family protection.
Importance of Term insurance contract
Below is the major benefit of the term insurance contract.
1. Term insurance renders financial protection to your family at a very cheaper rate ( less expensive)
2. It helps your family to pay off the loan you borrowed during the time you are still alive thereby reducing the burden of the loan on the side of your family member.
3. One of the major benefits of term insurance is that it creates room for the second party (nominee) to be paid the amount of premium agreed upon when the main life assured passed on.
4. In the event of an unexpected death, the benefit from this term insurance contact can help your love take care of their daily expenses and also solve most of their pressing need.
5. Premium payment is very easy and transparent
6. The insurance company calculates the premiums based on the individual’s health, age, and life expectancy
Types of term insurance available
i. level term insurance: Your life cover stays the same and your premiums are fixed unless it is reviewed. Reviewable policies tend to be cheaper to buy.
ii. decreasing term insurance: Life cover decreases during the term of the policy, which reduces the cash payment the longer the term runs. This type of insurance is useful if you need to cover a reduced debt such as a repayment mortgage. It is usually less expensive than level term assurance.
iii. family income benefit: This type of policy is useful for providing financial security to your dependents. Instead of a lump sum, regular payments are made to them if you die.
iv. increasing term insurance: The premiums and cover will increase during the term of the policy. This can be used to keep in line with inflation or to cover an increasing debt
v. Convertible term insurance: This is the contractual modification of term insurance to enhance the policyholder’s transform the term insurance into whole life insurance or endowment insurance, as the case may be. This conversion could be made later without the need to subject the policyholder to a medical examination which usually is a prerequisite for the two types of life insurance.
1. Flexibility in premium payments (It’s generally the cheapest way to buy life insurance)
2. Affordability ( premium is relatively low)
3. Contract Duration ( policy term)
4. Life cover ( protects your family from financial challenge should in case you die within the contract range)
5. Age requirement (age entry)
6. Time consideration (Term life insurance policies have a specific length of time when your rates are locked in)
Term life insurance contract, like whole life insurance, is the type of contract that provides payment of a certain sum to the insured nominee only if he happen to die within the time the contract is still in force. It is also called a term life insurance plan.