Term insurance are insurance plans which offer protection for a limited time period. Most term insurance provide protection up to a maximum age range of 55 to 99.
How does Term Insurance fit into your insurance portfolio?
Term insurance is suitable for people who want high coverage and more affordable premiums compared to Whole Life Insurance.
For example, a young graduate who just found his or her first job, may want an insurance plan that provides high coverage. However, the graduate may find Whole Life insurance unaffordable because his or her income level is relatively low. In such case, Term Insurance may be a more affordable short-term solution.
What does Term Insurance cover?
There are different types of Term Insurance. Some cover death only, most cover both death and total permanent disability (TPD), while others also cover Major Critical Illness (dread diseases).
What are the different types of Term Insurance?
5 Years Renewable Term Insurance
Such plans usually pay out a lump sum upon death and/or TPD within a fixed term of 5 years. Under such plans, premiums are fixed for 5 years and you are given the option to renew at the end of the 5-year period without evidence of good health.
However, premiums may increase after each 5-year period. If you intend to take up a longer period (eg. 20 years), it may be cheaper to get a Term Insurance plan with a tenor of 20 years.
Convertible Term Insurance
Such plans offer the option (not the obligation) to the convert the Term Insurance plan into an Endowment or Whole Life plan without evidence of good health. Even if the insured’s health have deteriorated, he or she is still entitled to make the conversion.
Level Term Insurance
The sum assured and premiums of such plans, remain level (same) throughout the entire duration of the plan.
Reducing Term Insurance
The sum assured for such plans reduces over time. Such plans are usually bought together with housing loans. When you buy a house, you’ll want a higher coverage to insure against the risk of losing the ability to repay your loan. As you pay off your monthly installments, your need for coverage also reduce over time.
Caveat: You may get back nothing after paying many years!
It is important to note that most Term Insurance do not have any cash value. That means if you do not make any claims throughout the policy term, you won’t get any money back.
Is Term Insurance Suitable for you?
As everyone’s financial situation is unique and tend to change throughout different stages of our lives, it’s advisable to consult a knowledgeable and experienced Financial Planner to help you build a insurance portfolio that not only take into consideration of your current goals and financial situation, but also your future plans and needs.
