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Temporary Life Insurance
Temporary life insurance is one of two basic types of insurance policies available in the market (the other being permanent life insurance). Its temporary nature comes from the limited time period in which the insurance contract is in effect. It is often used interchangeable with term life insurance across insurance industries worldwide. Temporary life insurance is more commonly known as ‘term assurance’ in the United Kingdom.
The limited term begins when the insurance contract is signed, and lasts anywhere from one to thirty years. However, there is also such a thing as an annual renewable term, wherein coverage is provided for a year, after which time, the policyholder is given the option to renew.
Components of Temporary Life Insurance Policies
In insurance industry jargon, temporary life insurance is referred to as ‘pure insurance’, which simply means that the premium you pay buys protection for your surviving family or beneficiaries in the event of your death; nothing else, since temporary life insurance does not accumulate cash value.
A temporary policy purchaser will have to consider these three components:
- Face amount – this is the amount of the death benefit that your survivors will receive. This amount can remain constant or it can decline.
- Premium – this amount will largely depend on the age and state of health of the purchaser at the time the contract is put in force. It can increase or remain level throughout the contract term. Temporary life insurance premiums are the least expensive.
- Term – this is the amount of time the temporary life insurance will remain in effect; that is, the survivors will only receive a death benefit in the event the purchaser dies within term.
Length of Temporary Life Insurance Policies
As mentioned earlier, temporary life insurance generally lasts from one to thirty years (with a twenty-year policy being the most common) unless an annual renewable term is specified. This basically makes the contract a one-year policy where the insurance company guarantees the insured it will renew the contract for an equal or lesser amount REGARDLESS OF INSURABILITY.
Factors to Consider When Shopping for Temporary Life Insurance
The most crucial factor to consider when purchasing temporary life insurance is if the insurance company GUARANTEES renewal. This assures that if you, for any reason, become uninsurable, you will still be able to acquire some protection. Moreover, this guarantee can somewhat offset the built-in disadvantage of a temporary policy: its temporary nature.
The purchaser should really demand such a guarantee for this type of policy because the fact that temporary life insurance does not accumulate cash value (i.e., having nothing to show for all your invested cash unless you pass away) makes it quite unattractive despite its low cost.
Return of Premium
An exception to this type of policy having no cash value is when it contains a return-of-premium feature. This allows you to get a refund on all the premium payments you made if the temporary life insurance contract was kept in force over the entire term. Premiums paid for this feature will, expectedly, be higher.
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