Life term assurance refers to a life insurance policy that provides life insurance coverage for a specific, fixed period of time, and is paid through through fixed premium payments. Often referred to as term life insurance, it is generally considered the most straight forward type of life insurance policy.
Life Term Assurance Overview
There are two basic categories of life insurance, those being term life and whole life, sometimes referred to as permanent life. Determining which type is a better fit for you will depend on a number of factors and preferences that you may have. We’ll go over the significant differences and you should have a fairly good idea which type of life insurance you are in the market for.
As it’s name would suggest, life term assurance, or term life insurance policies are written to provide coverage for a specific period of time. This time frame can vary, but most often is is in the range of 5 to 30 years. They function in a simple manner.
The insured party purchases the policy for the desired number of years and for a benefit amount that meets their personal needs and desires. They then pay their scheduled premium payments, typically on a monthly or annual basis. If the insured individual should pass away any time during the policy period, the benefit amount would be paid to the chosen beneficiary.
Life term assurance policies differ in a few ways to whole life policies. Whole life is a policy that is written to cover the entire life span of the insured person. They also include within them a investment component in that a portion of the paid premiums are invested into a fund, or whatever tool is used for the particular policy. These policies are often used as an extra retirement savings strategy. They can also be sold or cashed in at a time chosen by the insured party, in which case they would receive a lump sum.
This is a brief explanation of the two types of policies. Therefore, if you are in the position of deciding which type is best for you, it is recommended to gain a clear understanding, as well as consult with a financial professional before making up your mind.
Life Term Assurance Pros and Cons
The pros and cons of life term assurance policies will be relative to your individual situation, your current and anticipated future financial situation, and your goals. They are not so much pros and cons as they are simply characteristics of the policy type, and deciding based on those which type best suits your circumstances and needs.
Obviously, if your life insurance needs are only urgent for a certain time period, then a lfe term assurance policy is likely a good solution. Many people will need coverage for the number of years that gets them to the point of paying off their mortgage, no longer have children that are financially dependent upon them, or just to where their financial obligations are lessened.
Term policies are typically less expensive, and come with a fixed premium amount. However, they have no cash value if they are terminated, or if no benefit is paid out on them.
Again, it is recommended that you consult with a financial adviser who can help you consider all the relevant factors, and decide which type of policy would be most beneficial to you, it may very well be life term assurance.