Term life insurance is the simplest form of life insurance where the insured would get coverage for a short period. Once that period is over, the insurance will expire unlike permanent life insurance that does not only last for the life of the insured, but the money paid into the insurance will be accumulated to be paid out to the insured at the time of death or when the insurance policy matures. This means what determines the kind of insurance involved is the kind of premium paid on a regular basis and what the agreement was on the outset. The premium for the term life insurance is much lower than the permanent life insurance.
Usually, individuals use term life insurance when they need to cover college education for their children, a loan such as mortgage, consumer debt, and dependent care etc. If they die without fulfilling these obligations there will be money after their death so that their dependants who are the rightful beneficiaries would receive an agreed upon sum in a bulk payment to do whatever they think is appropriate. The problem is if the death occurs one day after the expiry date of the insurance policy, the beneficiaries will not be entitled for any payment. But in the case of permanent life insurance, as long as the policy had been kept current at the time of the expiry there will be money to be paid out even if the insured is alive, one of the reasons why the premium is higher. However, if the term life insurance holder dies within the insured period and the payment had been kept current, the insurance company will pay the agreed upon sum.
A useful aspect about term life insurance that is worth knowing is that if the insured become uninsurable because of a chronic illness, the insurance company could refuse renewing the policy when it expires unless the arrangement includes what is known as "annual renewable term" that will bind the insurance company to renew the policy. If that chronic illness kills the person within the renewed period, the beneficiaries would be entitled for a pay out. Even if the policy will be renewed yearly the contract could be stretched up to 30 years and eventually it might not avail advantage simply because the premium paid could go up as the age of the insured progresses and individuals would prefer to look at permanent life insurance where the money they are paying could be accumilated up to the end of the policy and they will be entitled for a payment.
There are also two other features that are worth knowing about this particular type of insurance that are called "level term life insurance" and "term life insurance with return on premium" at the end of the policy. The first one, the level term life insurance, it is possible to lock the premium for a given number of years such as 10, 20, 30 years and within these years the premium will not change, otherwise, whenever the policy is renewed it is possible to pay a higher premium. The second feature is similar with the permanent life insurance where there will be a premium payback when the policy expires and the premium is higher than the regular term life insurance. At the same time, such insurance policies could allow to borrow money from the accumulated premium after a certain time had lapsed. This kind of insurance policy is recommended for people who are healthy and believe that they will outlive the expiry date of the policy, because they would get back most of the premium they paid while they were all along covered by a policy. The insurance companies will invest the difference on the high premium, could generate enough income to cover their cost, and could earn some profit too.
Another kind of insurance policy that fall in the term life insurance category with a little bit of a twist is what is called no exam protection that makes the insured exempt from taking any medical examination, where all that will be required is to answer a few health related questions and if the insurer is convinced that the insured will not be a high risk customer it is possible to arrange a policy that could cover up to 30 years. The whole arrangement, especially the premium depends on the health, age, and the amount of the coverage that agreed upon. It is also possible to introduce what is known as level rates or level amounts of coverage where keeping the premiums and the coverage amount the same for the number of years the insurance is agreed upon is possible and for the extra privileges they get the insured are expected to pay a higher premium than the normal term life insurance.
All forms of insurance use the same mortality table to arrive at the involved risk level and the cost of insurance. In addition, a death benefit is always tax-free even if the policy has always to be current in order to collect the benefit. The reasoning behind why term life insurance has a lower premium tag is it is possible to tell, at least from the health perspective if an insured individual could die within a year time of the coverage or not, by simply making a good observation, but it is difficult to rule out accidents. However, statistics has it that except to what the insurance policy offers to the insured person in a form of security or peace of mind, not even 1% of term life insurance policy holders collect benefit, the reason why the insurance companies are willing to take such risks with the involved low premium. Anyone who is holding the term life insurance for a given number of years can easily convert it into permanent life insurance without going through the required procedures new applicants will have to go through simply because there is a record on file about the insured individual, but the premium will go up to meet the requirements of the permanent life insurance.
The conclusion is the insured will get exactly what they paid for most of the time, even if the risk is much higher for the insurance companies. The fact remains that insurance companies always make profit on the difference and if there had not been a lucrative return for what they would be doing, not so many of them would do it. In all this what consumers have to do is inform themselves well about the available insurance policies that will give them the best coverage for the money they are willing to pay so that when something that is out of their control occurs it will not upset their life.