Term insurance can be defined as a type of insurance that is availed for a certain period of time or a fixed term (number of years). The basic differentiating feature of term insurance is that unlike other types of life insurance policies, a term insurance policy is less expensive since it does not have any cash value. The policy comes useful only if the policyholder dies within the timeframe during which the term insurance policy is in force.
Types of Term Insurance
- Annual Renewable Term Insurance : This type of insurance offers future insurability for a year or a set period of years. The premiums under this policy increase every year as the age of the person increases. This type of insurance is best for short term insurance needs. The policy can be renewed for a period of 5 to 30 years.
- Level Premium Term Life Insurance : Under this type of insurance, the premium is fixed at the start of the policy and you are required to pay a fixed premium every year. Even if the risk of death increases, the premium remains the same. The most common duration under level premium policy are: 10 years, 15 years, 20 years and 30 years.
- Decreasing Term Life Insurance : This is a type of term insurance where the death benefits decrease on a scheduled basis. Premium under this type of policy is constant through the life of the policy. The reduction in policy payout or sum assured usually happens monthly or annually. The term of the policy may range from 1 year to 30 years.
- Increasing Term Life Insurance : In this type of insurance, the sum assured increases over the life of the policy. The premium may vary depending upon the insurance company.