What are the Types & Benefits of Term Life insurance? | MetLife Bangladesh

Definition of Term Life Insurance

Are you doing financial planning for the future of your family? Including term life insurance in your portfolio is one of the most basic steps you should take to protect your loved ones’ financial security. Choosing the right plan comes with benefits and coverage that provides for family members, should the policyholder pass away. Keep reading to find out the types and benefits of term life insurance.

Definition of Term Life Insurance

Term life insurance is defined as a policy that gives beneficiaries a payout in the event of the policyholder’s demise. The plan provides financial relief for loved ones during difficult times when the main source of income stops because of the insured’s death.

What is Term Life Insurance?

Defined as a policy that guarantees a death benefit payout to beneficiaries, term life insurance policies offer financial relief should the policyholder pass away during the policy term. This type of insurance plan doesn’t build cash value nor does it offer a savings component.

Term life insurance protects your loved ones for a specific period of time. Periodic payments or premiums are paid throughout the policy term. This amount is determined by your age, health, gender and policy face value.  The death benefit is only paid if the insured passes during the policy term.

Why Buy Term Life Insurance?

If you’re the main breadwinner of your family who relies on you for their financial security, term life plans will protect them in the event of you not being around. These plans can come with additional coverage such as critical illness benefits, protecting you and your family should you be diagnosed with a terminal disease.

Buying term life insurance reassures you that your spouse and children will continue to live a lifestyle they’re accustomed to should your income stop.

How Term Life Insurance Works

The features of a typical term life insurance work in the following ways.

1. Premium Calculated on Policy Value, Your Age, Gender and Health

The insurance company calculates your premium based on factors such as your age, gender and medical history. The policy’s face value or payout amount determines the premium as well. Non-payment of the premium will cause the policy to lapse.

2. A Medical Exam May Be Required

Some insurers will request a medical exam before granting life insurance. Other questions such as your smoking status, what medication you’re taking and your driving record may be asked. The insurance company sometimes requests information on your family history, your hobbies and your occupation.

3. A Death Benefit (policy’s Face Value) is Paid Out to Your Beneficiaries

If the unfortunate eventuality of the policyholder’s demise during the plan’s term, the insurer will pay out the policy’s face value to beneficiaries. This amount can be used to cover funeral costs, replace lost income, cover your child’s education needs or pay off debts such as your mortgage.

4. If the Policy Expires Before Your Death There’s No Payout

It’s important to remember that if your policy expires before your death, there’s no payout for your beneficiaries. Depending on the terms and conditions of the type of term life insurance plan you purchased, you may have the option to renew your policy at the time of expiry. However, the premiums will be re-calculated to factor in your age and medical history at this time.

Types of Term Life Insurance

In general, term life insurance is broken down into the following three types.

The Level Term or Level-Premium Policy

This type of policy provides coverage for the duration of the policy term  based on the terms and conditions stipulated by the insurer. The premium and death benefit amounts are fixed. Premiums are normally higher for this type of term life policy.

Yearly Renewable Term (YRT) Policy

A yearly renewable term policy is renewed annually and doesn’t come with a fixed term. The premium increases as the policyholder ages, making it more expensive the older you get.

Decreasing Term Policy

This type of term policy is often taken out to cover the mortgage on your home in the eventuality of the policyholder’s passing. The death benefit amount is matched with the home loan amount and decreases as the mortgage is paid off. A fixed premium is paid for the duration of a decreasing term policy.

Benefits of Term Life Insurance

The main benefit of buying term life policies is reducing financial risk to loved ones in the case of the policyholder passing away during the policy term. However, there are a number of other benefits worth noting when purchasing this type of insurance.

High Sum Assured at Affordable Premium

Term life insurance is one of the more affordable plans that offer a high sum assured when paid out as a death benefit. Premiums are comparatively affordable as this type of insurance doesn’t include a maturity payout.

Easy to Understand

The terms and conditions of term life insurance are straightforward and are one of the simplest forms of policies available for financial planning. You pay a premium for life cover during a fixed term. The death benefit is paid out to family members should the policyholder pass away unexpectedly. There are no other components such as investments that could complicate this plan.

Multiple Death Benefit Payout Options

You have the option of selecting a lump sum payout allowing your family to cover financial liabilities or monthly payments providing a regular income for everyday living expenses.

Additional Insurance Riders

Adding an additional insurance rider enhances the term life benefits at an extra premium. These can include waiver of premium, Medicare, hospital care, accident indemnity certificate, critical care, accidental death benefit and Limited Accident Insurance Certificate.  

Income Tax Benefits

As per the Income-tax Ordinance Act 1984, an insured person will receive up to 15% income tax rebate with insurance benefits (it is treated as an investment). It is always advisable to consult with a professional income tax practitioner to know the exact rebate amount you may avail with your existing insurance plan.

Accidental Death Benefit Coverage

Accidental death benefit coverage protects loved ones should the policyholder pass away during an unfortunate event. The benefit payable is the account value or face amount of the policy taken out.

Return of Premium Option

While conventional term life insurance doesn’t offer maturity payouts, many insurers are adding returns on your premiums. Known as the return of premium option, this benefit is paid out if the policyholder outlives the policy term. Having both insurance coverage and attractive returns on your premium maximizes financial security for your family during challenging times.

How to Choose Best Term Life Insurance

Choosing the best term life plan is dependent on personal preferences. However, the following features make some plans more attractive than others.

Cost of Premiums

Term life premiums are relatively affordable. However, they do vary depending on a number of factors including your age, health and policy face value. Your insurance advisor will calculate the costs of premiums for different types of term life, making it easier for you to decide which is the best option for your budget.

Frequently Asked Questions (FAQ)

Do you get your money back at the end of term life insurance policy?

Insurance companies are adding benefits such as maturity payouts to this type of plan. This feature can increase the premium compared to a conventional term life policy that only includes a death benefit.

Which is better: term life insurance or whole life insurance?

Whole or permanent life insurance offers coverage for the whole life of the insured. Premiums are paid for over the lifetime of the policy or for a specific time period. Beneficiaries receive a death benefit payout on the demise of the policyholder. A surrender value is also an option if the insured elects to lapse the policy before maturity.

Can a senior citizen get term life insurance?

Senior citizens can get  term insurance, it’s an attractive option for securing the financial security of dependents. However, insurers often stipulate a cut-off age which could be anything from 60 years and older.