As the name indicates, term life insurance is cover for an insured’s life for a specified amount of time. During the term of the policy, the insured is covered against such perils as death, dreaded disease or disability (depending on the type of cover). During this period, the insured will pay premiums for the term life insurance.
What separates term life insurance from other long-term insurance products, is that the policy does not earn a cash value that can be drawn from or cashed in and a payment is not guaranteed. That is, if the term of the life insurance policy is up, the insured will not receive a payout. (This is different to whole life insurance which pays the insured his or her premiums back once he or she reaches a certain age.)
Term life insurance only pays out in the event that the insured dies, contracts a dread disease or becomes disabled within the term of the policy. In this regard, it is pure life insurance.
Term life insurance: why choose it?
While whole life insurance guarantees that the policyholder will receive a payout (even in the form of annuities once the life portion of the policy expires), it is costly and requires a broker to set up. Term life insurance is simpler and can be taken out with a direct life insurance company.
Term life insurance may also be taken out to cover an insured during those stages of his or her life in which he or she is depended upon. That is, if an insured has children, he or she can take out term life insurance which expires on retirement age, by which time the insured’s dependents will be self-sufficient. (Note: term life insurance may a requisite of creditors such as banks to cover the amount an insured owes them on a house, for example. In such an instance it is better to opt for a credit life insurance policy which pays only creditors the amount owed them in the event of the policyholder’s death or disablement.)
Term life insurance: what to consider
Three key factors determine the relevance of term life insurance, namely: the extent of cover, the premium and the duration. The extent of cover not only refers to how much the policy will pay out in the event of death, but also if the policy includes dread disease cover and disability.
While most life insurance companies will look at your health, lifestyle and medical history to determine your life insurance risk, they evaluate these demographics differently. Consider the premium when choosing a term life insurance product. It might be cheaper elsewhere.
The duration of the policy refers to how long it will last. Is the policy covering you only until you’ve paid off your debt, or until the age of retirement? If you have dependents, make sure the policy extends until such time as they can look after themselves.
For a range of term life insurance products, fill in our online form and a Life.co.za representative will contact you with multiple options. If term life cover is not what you are looking for, then consider whole life cover.