Term lesson 20

1. Term lesson 20 Componential analysis Term insurance

2. 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.

3. 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.

4. Types of term insurance • Level Term • Decreasing Term • Increasing Term • Renewable Term • Convertible Term

5. 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.

6. 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.

7. 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.

8. 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.

9. 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

10. Criteria ? • Which criteria help to distinguish between the sorts of term insurance? • the premium • the pay-out • renewal • convertibility

11. 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