Download Term Life Insurance

Term lesson 20
Componential analysis
Term insurance
Term Life Insurance
• Term life insurance is the most simplified of the
life insurance types. The basic concept for term
life is that the policyholder pays a premium for a
specified amount of coverage for a limited period
of time (aka "term").
• If the insured should happen to die before the
end of the term, the beneficiary would be paid
the face value of the policy.
• If the insured does not die before the policy
period expires, no benefit is paid out.
Term insurance: premiums
• A term life insurance policy has no cash value [surrender value] and
the coverage period is very specific. The premium is intended to
cover only the cost of the insurance itself and usually for fairly short
period of time.
• The premiums are based mainly on the age of the policyholder and
with the increase of age there is the more likelihood of death. The
most common of the term policies is the one-year policy written with
level benefits. These policies renew annually until a certain age
(average 65-70) and the premiums fluctuate according to gender
and by specific underwriting guidelines. Some medical testing (i.e.,
blood, urine, saliva, etc.) maybe required at a certain age or under
certain medical conditions.
• Premiums apt to be more expensive at older ages and most
insurance companies offer policies with increments of 5, 10, 15, 20,
or 30-year guarantees, with premium levels based on the insured's
age at the time the policy was purchased, and on the length of the
guaranteed premium level.
Types of term insurance
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Level Term
Decreasing Term
Increasing Term
Renewable Term
Convertible Term
level term
 Level Term is a death benefit contract,
which remains level throughout the policy
term. The premium can increase at
confirmed intervals over the years or it
may remain the same, but the death
benefit will remain the same. This type of
term insurance is sold in yearly terms of
one, five, ten, twenty, or until the age of
65.
decreasing term
 Decreasing Term is a death benefit
contract, in which levels decrease over
time, but premium remains the same
throughout the policy period. The most
common use for this type of policy is to
cover a mortgage. As the mortgage
amount decreases of over time, so does
the amount of insurance needed. A term
life policy is used cover the policyholder’s
financial obligations.
increasing term
 Increasing Term is a death benefit contract, in
which levels and premium increase over time.
This coverage is usually written as a rider to a
policy and written for the purpose of providing
the policyholder with increasing death benefits
until the policy terminates. One reason for
obtaining this type of coverage could be that the
insured needs his/or hers benefits increased
while their children are attending college.
renewable term
 Renewable Term is a death benefit, which
provides levels throughout the policy period. In
addition, this coverage provides for automatic
renewal without having to provide proof of
insurability. The premium is adjusted according
to the age of the policyholder upon renewal of
the policy. If the insured experiences ill
health/terminal conditions, the insurance
company cannot non-renew or cancel the policy.
The maximum number of times a policy can be
renewed is specified by the insurer.
convertible term
• Convertible Term is a death benefit, which
provides levels throughout the policy period. In
addition, this coverage provides the option to
change the policy to a permanent (whole life)
policy without having to prove evidence of
insurability. An additional premium is required for
this special feature. If the insured experiences
poor health/terminal conditions, the insurance
company cannot non-renew or cancel the policy
Criteria ?
• Which criteria help to distinguish between
the sorts of term insurance?
– the premium
– the pay-out
– renewal
– convertibility
These can be incorporated directly into the
definitions
• level term insurance : term insurance providing level
death cover over time and requiring payment of level or
rising premiums
• decreasing term insurance : term insurance providing
decreasing death cover over time and requiring the
payment of level premiums
• increasing term insurance : term insurance providing
rising death cover over time and requiring the payment
of rising premiums
• renewable term insurance : term insurance which can
be renewed automatically without proof of insurability
• convertible term insurance : term insurance which
can be changed into a whole of life policy without proof
of insurability