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Life insurance is an insurance policy that provides a sum of money either on the demise of the insured person or after a specified period. A life insurance policy with limited coverage period is named ‘term life insurance.’ When the term ends, the owner of the insurance policy has to decide whether to continue renewing it or let the coverage come to an end. This is in total contrast to a permanent life insurance policy, which, as the name suggests, offers coverage throughout the life of the insured.
The premiums paid for the term life insurance policy are used as the cost of the insurance coverage, to insure individuals against the loss of life. Based on the insured person’s age, their gender, quality of health and approximate life expectancy, they a medical team organized by the insurer, he fixes the premium amount that is to be paid. At times, even factors like the regular medications the policyholders are on, whether they are smoker or non-smoker, their occupation, and the family history of diseases also influence the premium amount to be paid.
On the policyholder’s demise during the term of the policy, the amount of money stated in the policy is paid out by the insurer. This tax-free face value of the policy is usually transferred to the beneficiary of the insurance policy. On the other hand, if the term ends and the insured is still alive, there is no payment made to anyone by the insurer. However, term life insurance policies can be renewed after it expires, by the insured party.
The least expensive among all types of life insurance policies, term life insurance is offered at a low cost because most policies do not hand over a payout to the insured, the death benefit. That is, the policy term ends before the life of the insured. This is why term life insurances are a viable option for insurance companies to sell.