Term insurance provides life insurance coverage for a specified term. The policy does not accumulate cash value. Term is generally considered “pure” insurance, where the premium buys protection in the event of death and nothing else.
There are three key factors to be considered in term insurance:
- Face amount (protection or death benefit),
- Premium to be paid (cost to the insured), and
- Length of coverage (term).
Annual renewable term is a one-year policy, but the insurance company guarantees it will issue a policy of an equal or lesser amount regardless of the insurability of the applicant, and with a premium set for the applicant’s age at that time.
Level premium term can be purchased in 5, 10, 15, 20, 25, 30 or 35 year terms. The premium and death benefit stays level during these terms.
Another common type of term insurance is mortgage life insurance, which usually involves a level-premium, declining face value policy. The face amount is intended to equal the amount of the mortgage on the policy owner’s property, such that any outstanding amount on the applicant’s mortgage will be paid should the applicant die.
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