Term Life Insurance – Broken Down
Term life Insurance is often misunderstood, and with many options available in the insurance market it is easy to see why…. we have deconstructed some of the basic concepts for you below in order to simply this type of life insurance.
What is Term Life Insurance?
It is designed to pay a death benefit if the insured (policyholder) should die during the policy period (the term). Although term life insurance builds no cash value and isn’t considered an asset to the policyholder, there are living benefits available through important riders or extra coverages.
When is the most appropriate time to consider buying Term Life Insurance?
In most cases, term insurance is purchased to protect surviving loved ones from assuming your debts and to replace your income stream should you die unexpectedly. The most appropriate time to purchase is when you are less than 50 years old when the rates are most affordable.
How does term insurance differ from whole life insurance?
Unlike term insurance which is temporary coverage, whole life insurance is considered permanent insurance since the policy will remain in force until the insured's death as long as the periodic premiums are paid. Since whole life insurance premiums are more than the actual cost of insurance, the insurance policy builds cash value over time while term insurance does not.
What are the different types of term insurance?
There are three different types of term insurance available in the life insurance marketplace.
Level Term – Level term, which is the most popular, provides a face amount (death benefit) for different policy periods depending on your preference. Most policies are issued for 5, 10, 20 and 30 year periods. During the policy period, the periodic premium is normally a guaranteed amount and the company typically will offer a renewal for a period of 1 or 5 years at expiration.
Decreasing Term – Also referred to as Credit Life, the decreasing term policy is typically used to insure against a specific debt. As the debt is decreased, so is the face amount of the policy.
Annually Renewable Term – Annually renewable term is a one-year policy with level periodic premiums for the year. At expiration, the company will offer a renewal based on the new age of the policyholder.
What is a rider and how is it important?
An insurance rider is used to broaden the coverage of your base policy. Although an additional premium is typically required, riders can be used to add living benefits to your policy. The most popular riders being offered today are:
Critical Illness Benefit – This rider acts as a living benefit because it is paid out before the death of the insured. If the insured is diagnosed with one of the defined critical illnesses or disability, the benefit (defined in the policy) will be paid as an advance on the death benefit. There is a six-month waiting period before the rider becomes active.
Permanent Disability Benefit – Also considered a living benefit, the permanent disability benefit pays a cash sum if the insured becomes permanently disable for at least six months resulting from an accident or illness. Since this is an advance payout, the death benefit will be reduced by the amount paid.
Waiver of Premium – The waiver of premium benefit allows for your policy to remain in force when you most need it. This rider allows for the periodic premiums to be waived if you are totally incapacitated because of injury or illness.
To compare a range of Term Life Insurance policies or quotes in Hong Kong, or if you would like to learn more about this type of insurance coverage, our Trusted Union advisors are ready to help you.