Explore Your Insurance Options: What is Term Life Insurance and How Does It Work?

Life is full of milestones, and during certain phases, you may feel an even stronger need to protect your family and loved ones. Whether it's while your children are still studying, you're paying off your home or car, or you’re just thinking about their future, ensuring financial security becomes a priority.

You’ve probably considered ways to safeguard them if something were to happen to you—and that’s where term life insurance comes in. It’s an affordable, straightforward life insurance plan option in the Philippines that provides peace of mind during the times you need it the most.

Let’s break down what is term insurance and how this policy works so you can determine if it’s the right move for you.

In life insurance, term life insurance is often regarded as the most straightforward option. But what exactly does it cover, and why should you consider it?

Term life insurance is a policy designed to provide coverage for a specific period. It can be a 10-year life insurance policy or extended to 30 years. During this term, you pay premiums, and if something happens to you within that time, a death benefit (a lump sum of money) is paid out to your beneficiaries—those loved ones who rely on you financially.

What makes it different from other types of life insurance, like whole or universal life insurance, is that term life insurance is temporary. It’s designed to cover you for those pivotal periods when your financial obligations are at their highest—like when you’re paying off a mortgage, covering school fees, or raising children. Once the term is over, the policy can be renewed, but the cost of premiums may increase as you age or if your health changes.

The great thing about term life insurance is it’s customizable and flexible. You can choose the coverage amount and length of the term based on your needs, ensuring that your family will be protected during life's most critical stages.

Aside from knowing what term insurance is, you should learn that it’s not a one-size-fits-all type of policy. There are several variations, each tailored to meet different financial goals and stages of life. Here’s a breakdown of the most common types:

This is the most straightforward option, offering a consistent premium throughout the term. The premium remains the same whether your policy lasts 10, 20, or 30 years. This predictability makes it a popular choice for many, as you’ll know exactly what to expect regarding payments, with no surprises. The death benefit also remains unchanged throughout the term.

As the name suggests, the death benefit is gradually reduced over the policy term in decreasing term insurance. This type of insurance is often tied to large debts like a mortgage. Since the amount you owe on the debt decreases over time, the need for a large payout lessens, making this a cost-effective option. Premiums generally remain stable even as the death benefit declines.

The opposite of decreasing term, this policy increases the death benefit over time. You might choose this option to keep up with inflation or growing financial responsibilities as your family expands or your lifestyle changes. The premium for this type may start lower, but it usually increases along with the death benefit.

If you’re looking for flexibility, convertible term insurance allows you to switch from term life to a permanent life insurance policy (like whole life or universal life) without a medical exam. This can be an attractive option for those who may want the affordability of term life now but foresee a need for more comprehensive coverage in the future.

When you sign up for term life insurance, one of the first decisions you'll make is how long you want coverage. Typical options range from 10, 20, or 30 years. The choice depends mainly on how long you expect your family to need financial protection.

For example, if you have young children, a 20- or 30-year policy may be ideal to ensure they’re covered through their college years. Alternatively, a 10-year policy might be suitable if you’re nearing the end of paying off a mortgage or other significant debt.

The next major factor is choosing the death benefit amount—the sum of money your beneficiaries will receive if you pass away during the term. The death benefit should be enough to replace your income, cover any debts, and provide for your family’s future expenses (like education or mortgage payments). You can customize the payout based on your family’s financial needs.

Beneficiaries are the people who will receive the death benefit from your policy. It can be your spouse, children, or any other loved ones you choose. You can name multiple beneficiaries and even specify how much each will receive.

The amount you pay in premiums is determined by several factors, including your age, gender, health, and the amount of coverage you choose. The younger and healthier you are, the lower your premiums will likely be. Premiums are typically paid monthly or annually, and it’s important to keep up with payments to ensure your policy remains active.

If the unfortunate happens, your beneficiaries must file a claim with the insurance company. They’ll provide the necessary documentation, such as the death certificate, and once the claim is processed, the death benefit will be paid out as a tax-free lump sum. This money can be used for anything—from covering funeral expenses to paying off debts or saving for the future.

On the other hand, if you live beyond the term of the policy, you will not receive any payout. You can choose to renew your insurance plan, but you must go through the same application process. Your premiums may also change because you’ll be older than your first application.