Contents

• Features of Term Life Insurance
• Who Can Benefit from Term Insurance?
• What Does Term Life Insurance Cost
• Questions to Ask When You Compare Term Insurance Policies
• Types of Term Life Insurance

Term life insurance, or term insurance, can be looked on as being pure insurance. It has no frills attached and gives you insurance cover on your life for a stipulated period of time. During this time an agreed amount will be paid to your beneficiaries should you die.

Features of Term Life Insurance

The term of your life insurance could be 10, 15, 20 years or more, depending on the life insurance company you choose, but in all cases your premium payment for that period of time will remain fixed. All you need do is to make the required premium payments when they are due and you will remain covered for the amount agreed upon in your insurance contract.

Then, when the term expires so does your cover. This is similar to the way general insurance works on your car or house for example. If your house or car should suffer damage through fire or accident while your insurance premiums are up to date, you will receive retribution for the loss. Similarly, if you should die during the term of your insurance your beneficiaries would receive the amount you were insured for. However, if your term life policy were to expire and nothing happened during the period of cover that required a claim, the policy simply lapses.

In reality most insurance companies have a structure where, as the existing term life insurance policy is due to expire, you can automatically gain new coverage with an ongoing policy, albeit at an increased premium which represents the difference in your age from when the initial policy was taken out. If you don’t want to pay the increased rate you can opt to lower the cover.

Who Can Benefit from Term Insurance?

Term insurance is of particular advantage in the following situations:

• Replacing an income for your partner or your family that would be lost if you were to die.
• Corporate protection against the loss of an important employee through unexpected death.
• Business protection on the life of a business’ partners.
• To cover debts such as mortgage, bills and funeral.
• To fund your children’s further education if you were to die.
• The payment of childcare costs if the death of a spouse means the other parent needs to return to work.

The biggest benefit of taking out term insurance is age. It doesn’t matter whether you are a smoker or non-smoker, man or woman, the younger you are when taking out term life insurance the cheaper it will be. Term insurance remains one of the most appropriate insurance options for family protection as it offers a low cost, high cover protection when you need it most. It can be taken out over different terms so you can have a higher cover when your responsibilities are at their greatest, such as when raising a family or buying a home.

What Does Term Life Insurance Cost

Term insurance is the cheapest form of life insurance and it can be taken out to give you a large amount of cover for certain periods in your life such as when your responsibilities are at their highest, and a lesser amount of cover as your responsibilities diminish. You can take term insurance out for periods of 10, 15, 20 or 30 years depending on your own specific needs. With each time period the amount of cover can be changed to what you feel is the most appropriate to suit your circumstances for that particular period.

The only thing you will have to remember is that there is an age limit on term insurance, usually 80 years, but you can overcome this by taking out of funeral cover to keep you protected in your final years. In the case of funeral cover, although premium payments cease at the age of 80 years, the cover continues and your family is protected from high funeral costs after you die.

Term insurance cover is cheapest when you are young as the risk of you dying is lower, the older you get the more likely it is that you are going to die while under the term insurance period, and this is reflected in the premium being charged. Where a large cover can be purchased for a very small premium early in life, the same cover can be out of reach financially, in later years. This is why you should not leave it too long before taking out adequate insurance to cover the different stages of your life. If you reach retirement age and your term insurance cover has expired, you will find it quite expensive to get funeral cover. Many older people find themselves paying $80 a month or more for term life insurance in the form of funeral insurance, for just $15,000 cover, whereas if the same policy had have been taken out in their younger days they would be paying out less than $15 a month.

Questions to Ask When You Compare Term Insurance Policies

• How much can you I to spend monthly for insurance?
• How many dependables do I have?
• Is this a financially solid provider?
• Do I need insurance for a specific amount of time or permanently?
• How much money do I need for retirement?

Types of Term Life Insurance

Before superannuation was universally adopted in Australia, for most employees it was commonplace for life insurance companies to sell whole of life insurance policies. These particular policies were made up of two distinct portions:

• Term insurance that covered the insured person for the life of the policy.
• An investment portion which could only be accessed if the insured person were to cash it in. When this occurred however, the policy became ineffective and the insured was left with no cover.

This form of life insurance made the big life insurance companies the great institutions that they are today. Financial advisers don’t recommend whole of life insurance anymore, preferring term insurance for pure insurance purposes, and other schemes for investment purposes.

Term insurance is therefore similar in function to that of general insurance, except that with term life insurance it is a life that is being insured against, instead of a house or motor car. If premiums are paid and you die while the contract is still in force, the beneficiaries of the life insurance policy will receive the amount stated on the insurance policy. If that doesn’t occur and the agreement expires, no insurance is payable.

Many life insurance companies have a system in place whereby the term insurance cover can be extended automatically when the initial cover expires. When this occurs it is normal for the premium to increase to the same amount that a new customer would have to pay, if they were taking out a new policy at that time, and was of the same age. This right of renewal is usually conditional and offered for a specific time depending of the type of policy being offered.

Another option is for the term insurance to be taken over by a whole of life policy. In this case the insurance cover would remain until the death of the insured person and the premium payable would remain unchanged . It all comes down to personal choice and what is found to be most useful and beneficial at the time.