How Does a Term Life Insurance Work?

What is Term Insurance?

In a term policy, the insured pays a premium for a set period, typically ranging from 5 to 30 years. During this time, if the policyholder dies, the insurer pays a death benefit to the beneficiaries. If the policyholder survives the term, the coverage typically expires without any payout.

Unlike whole life insurance or endowment policies, term insurance has no cash value and is purely for protection. While this makes it more affordable, you must also remember that you won’t get any returns from your plan after its tenure.

How Does Term Insurance Work?

Term life insurance- how it works? Let’s understand in detail —

Selecting the Policy

First, you need to calculate the appropriate coverage and policy duration as per your requirements. Note that this decision must be based on your existing financial commitments, such as education, mortgage loans, or any other long-term financial goals.

Premium Payments

After selecting the coverage and term, you pay off the regular premiums. These can be monthly, quarterly, or annual payments, depending on the agreement with the insurer. In the UAE, term insurance policies are available from various providers, including local and international insurers, each offering competitive rates.

Death Benefit

In case of your unfortunate untimely death during the term, the insurance company will pay the agreed sum assured to the beneficiaries you’ve chosen. This lump sum can be used to cover outstanding debts, maintain the family’s lifestyle, or fund future financial needs, like education or healthcare.

No Payout Upon Survival

If you survive the term, there is no payout from the insurance company. The coverage simply expires unless you decide to renew it. Some insurers offer renewable term insurance, allowing policyholders to extend their coverage for another term without undergoing a medical exam, although premiums may increase due to age.

Policy Exclusions

Like all insurance policies, term insurance in the UAE comes with specific exclusions. For instance, death due to suicide within the first year of the policy or involvement in illegal activities may not be covered. It's essential to understand these exclusions before purchasing a policy.