- Annual renewable Level or Declining Term
- Level Term to a specific age
- Level term for a number of chosen years
- Mortgage or Key Man cover
Life insurance comes in many different designs. Yet one can say that all life Policies include basic Term (death benefit) protection. Policies that add more features on top of term - death benefit - have a variety of names such as Whole Life, Ordinary Life, Paid-up Life, Endowment Life, Universal Life and others. However very basic life insurance is "Term". Yet it also comes in a few different designs as well.
What is Term life insurance? Basically it is a policy that pays an amount of cash to a beneficiary in event of the insured's death occurring during a term in time stated in the policy. Thus a 10-year Level Term policy with a face amount coverage for $100,000 would pay the nominated beneficiary $100,000 in event of death of the insured. So long as the premiums are paid on time the policy remains in force for ten years from commencement date. Term policies do not have a savings or cash build-up feature. It simply has a death benefit and if death does not occur then there is no surrender or cash value paid upon completion of the term. Purpose of term life is to simply provide for a beneficiary's cash need over a specified period of time in event that the insured person meets an early death. Commonly used to pay mortgages, children's education, scheduled business contributions and the like.
Term policy designs are commonly:
- Level term is protection from a starting age to a specific future age usually not later than to age 65 or 70. Premium amount due remains same for each year up to end of the term of coverage.
- Specific level term policies can be for 10 year, 20 year or 30 years. These are purchased to cover cash payments expected or committed to be made by the insured person over the term of policy years chosen that can't be made because of the insured person's early death.
- Declining term covers a mortgage over a set period of time. The death benefit decreases as the mortgage balance owed decreases and totally ceases when the mortgage is paid in full.
Annual renewable level term is commonly the most affordable. Starting premiums and then renewal premiums are based on "attained age", thus increase each year. Policyholders pay less per $1000 cover when young and usually this is when they need protection the most. Renewals, though rising in cost each year, can continue up to age 65 or 70. This is very popular and effective cover for young families and young businesspeople. Businesses commonly use such cover for "Key man" protection of the firm.