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. While
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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