Few of the key characteristics of such policies are lower premiums, fixed time of period and no cash value. Please note, it is not similar to whole life insurance policy.
If you compare it with whole life policies, the term plan has the lowest premiums. The whole life insurance coverage carries higher premiums. Due to a fixed period of time, the risk cover to the insurance company is lower than the whole life policy. And the insurance companies pass that low risk to the policyholders in the form of lower premiums.
Another important reason for the lower premiums is that there is no amassed cash value to the policy. In fact the insurance companies use the premiums to cover the face value of policy plan. So there is no need to make the investment on the money for the advantage of the customer.
What is the no cash value? It means if the person insured is still alive and the policy expires, there is nothing to be recovered for the premiums paid out towards the policy.
The next advantage is that the policy has an end date. Most policies continue for several 5-year increments such as 10, 15, 20 and so on. And there are some companies which write policies for other fixed term length as well.
There are a few other traits of such kind of life insurance. Even though the policy is for a fixed period, most companies allow the renewal at the expiry of the coverage. It means you can prolong for another policy term. Because of the renewal, the biggest trouble is the premiums go up. Some policies allow for the conversion to a permanent policy when desired. It helps to enhance the value of the permanent policy. It highly depends on the status of the individual’s health. It is one of the vital factors why it is popular among the masses.
Also, the whole life insurance rates are usually higher than the term life insurance rates. The financial planners always recommend to buy a term plan as it is the best form of insurance and gives a very high cover at a lower price.
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