International Styles

Term Insurance

A term policy in life insurance may be defined as a contract which furnishes life-insurance protection for a limited number of years, the face value of the policy being payable only if death occurs during the stipulated term, and nothing being paid in case of survival. Sometimes such policies are issued for business purposes for a period as short as one year, and at various times such policies have also been issued upon the "yearly renewable term plan", according to which the insured could exercise the option of renewing the policy for successive one-year periods, each year's premium being regarded as the cost of that year's protection, and the premium thus increasing as the policyholder's age advanced. With this plan, also commonly known as " natural-premium insurance", is theoretically sound, it has proved impracticable in actual practice, because it is apparent that under this plan the premium would ultimately become prohibitive.

Owing chiefly to the aforementioned fact, the issuance of very short term policies is limited at present to cases involving business and financial transactions, In nearly all instances term policies are written by American companies for periods of five, ten, fifteen, or twenty years, although other periods are sometimes used. Such policies may insure for the agreed term of years only, or may be renewable for successive term periods at the will of the insured and without medical examination. Various restrictions are also imposed by many companies in the issuance of term contracts, such as limiting the size of the policy to a certain amount or the length of the term so as not to carry the insurance period beyond a certain stipulated age. Term insurance may, therefore, be regarded as temporary insurance, and, in principle, more nearly compares with a property insurance policy than any of the other life contracts in use. If a building, valued at $10,000, is insured for that amount under a five-year term policy, the company will pay this insurance in case of the destruction of the building during the term; but if at the end of the specified five-year period the owner neglects to reinsure the building by renewing the policy and a fire thereafter ensues, the company is absolved from all liability in view of the expiration of the contract. Similarly, if a person insures his life for $10,000 under a five-year term policy, either keeping the policy in force by paying a single premium in advance or by paying, as is nearly always the case, annual premiums from year to year, the company will pay $10,000 in case of the insured's death at any time before the expiration of the five years, nothing, however, being paid in case death occurs after the expiration of the contract period, the term life policy, like the fire policy, having expired at that time.

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