If the life insured dies during the term, the death benefit will be paid to the beneficiary.
Term insurance is typically the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.
The premium paid is then based on the expected probability of the insured dying in that one year.
Buyers of this type of insurance typically seek the maximum death benefit component with the lowest possible premium.
[4] In the competitive term life insurance market the premium range, for similar policies of the same duration, is quite small.
All of the above referenced variations of term life policies are derived from these basic components.
[citation needed] Most level term programs include a renewal option and allow the insured person to renew the policy for a maximum guaranteed rate if the insured period needs to be extended.
For example, if an individual owns a 10-year return of premium term life insurance plan and the 10-year term has expired, the premiums paid by the owner will be returned, less any fees and expenses which the life insurance company retains.
Some permanent universal life insurance policies do not accumulate cash values to stay active for long periods of time.
It is important to understand these policies could expire without value if the insured lives past the stated guaranteed period.
The insurance company that manufactures these types of universal life contracts offer the policy owner a guarantee that, as long as premiums are paid on as required, the death benefit will be paid to beneficiaries if the insured dies while the contract is active.
Death benefits are paid out income tax free, in addition to the policy face amount.
Simplified issue policies typically do not require a medical exam and have fewer application questions to answer.
Since there are no medical questions and everyone is approved, these policies will have a waiting period before benefits are paid out.
If the insured dies during the initial waiting period, only premiums plus interest will be returned.
[citation needed] Most state laws require that a carrier make payment for life insurance claims that happen past two years of coverage for suicidal death.