Term Insurance Flashcards
Term Insurance Characteristics
Term insurance is considered pure insurance and provides a pure death benefit. Term insurance does not offer any cash value or living benefits. Premiums paid for these types of policies strictly purchase death benefits. For this reason, term insurance policies are less expensive in the early years compared to permanent forms of insurance.
Types of term Policies
Level
Decreasing
Credit Life Insurance
Increasing
Annually Renewable Term
Re-Entry Term Option
Level
The death benefit and the premiums remain level during the policy term. Most group life insurance is written with a level term death benefit.
Decreasing term insurance
The death benefit decreases, but premiums remain level for the policy term; often utilized to pay off outstanding mortgage balances
Credit Life Insurance
Credit life insurance is a special form of decreasing term. Unlike the standard decreasing term policy, credit life automatically names the creditor as the beneficiary. There is no option. The policy cannot be written for more than the outstanding debt, since that is the limit of the creditor’s insurable interest. Once the loan is paid, the policy ends.
Debts covered in this way include:
Personal loans
Loans to cover the purchase of appliances, motor vehicles, mobile homes, and farm equipment
Educational loans
Bank credit and revolving check loans
Mortgages loans. etc.
Increasing term insurance
The death benefit increases over the life of the policy while the premiums remain level. This type of term is normally written as a rider to provide cost of living or return of premium benefits
Annually Renewable Term
The simplest form of term life insurance is for a term of one year. The death benefit remains level and the premiums increase yearly as the policy renews.
Re-Entry Term Option policy
Term policies with this option will allow the insured, upon the end of the original term, to renew based on attained age and may qualify at a discounted rate by proving evidence of insurability. Typically, with an annual renewable term policy, the term automatically renews as long as the premiums are paid. However, the Re-Entry Term option will allow the insured to renew at a lower rate than renewable term, as long as the insured meets the qualifications of insurability.
Special features
Renewable
A benefit that will renew the contract on the renewal date without evidence of insurability. The policy may be a one (annual), five, ten, or twenty year renewable contract, with premiums increasing at the beginning of each renewal period. The renewal premium is based upon attained age.
