What is Temporary Life Insurance?
For those who intend to conclude a life insurance contract, it is essential to know some basics. The first issue one needs to know is that this product can be divided into two basic categories, namely, there are the so-called temporary and the permanent life insurances.
The simplest life insurance type is the first category, temporary insurance, which is used only for a specified period of time without accumulating any cash value. Although it does not have a savings component, it is cheaper and more convenient for those who do not need insurance permanently or do not want to pay for it for a longer period.
But what does the term ‘temporary life insurance’ mean? Also called ‘temporary term’, this assurance-type gives the policy-holder life-insurance coverage, but only for a predefined term, usually for some years.
Temporary life insurance will provide coverage for those who pay the required premium periodically, that is to say until the insurance is valid.
Compared to permanent life insurance, this policy type cannot be used to accumulate cash value, which is evident if one thinks about the length of the assurance. An insurance company whose client pays for permanent life insurance let’s say for 25-35 years, will agree to give the client a high amount of money after the predetermined period is over and the client has paid regularly. However, it does not make any sense for an insurer to give a temporarily insured person the option of accumulating cash value. Nevertheless, this ‘pure’ insurance is a perfect choice for those who would like to buy protection in case of death for a certain (short) period of time. Who want to have protection and nothing else, temporary life insurance is the best choice that can be made.
Talking about temporary life insurance, there are three elements that need to be taken into consideration: the face amount, the premium that needs to be paid, as well as the length of the coverage (or the contract’s term).
The face amount of the temporary life insurance refers to the amount of the death benefit, namely, to the amount that will be paid to the beneficiary in case of the insured’s death. The premiums, on the other hand, represent costs to the insured: that sum of money that needs to be paid regularly in order to have the coverage. This amount is based on the risks associated with the insured, namely on the possible occurring costs of the insurance company. Such companies calculate the average premium that one client needs to pay in order for the company to be able to pay if an insured event happens, as well as to make some profit. The premiums to be paid also differ according to one’s personal and financial situation as well as one’s health. Finally, the contract’s term refers to that period of time during which one pays insurance premiums and therefore gets coverage.
Insurance companies offer such term-insurance contracts with different combinations of the above-mentioned elements. First of all, the term insurance's face amount will either remain constant or will decrease. The insurance’s term may be one or more years, and the premiums are also flexible: there are offers with unchangeable premiums, but some products come with increased premiums.
One of the commonest types from the temporary life insurance category is the one known as ‘annual renewable term’. This policy is valid for a single year, but there is a guaranteed option of getting a new policy after a year with an equal or lesser amount. With this renewable term contract, the insurability of the insured is not important, so the premium to be paid after a year (after the renewal) will not depend on such issues. It neither depends on the insured's age.
Another widespread type of term-insurance is the so-called ‘Mortgage Protection Insurance, which usually has a level-premium decreasing continuously, with the face-value declining as well. The face amount of the insurance is to equal the mortgage amount of the policy holder’s property. Therefore if the insured person dies, the amount that will be paid out to the beneficiary is the mortgage. All in all, by using temporary life insurance, the policy-owner insures his/her life for a specified period, and during that period, he/she is protected