Term life insurance, explained

Term life insurance pays a set amount to your beneficiaries if you die within the term, for example 10, 20 or 30 years. If you outlive the term, it pays nothing and the cover ends. It has no cash value, which is why it costs less than whole life for the same amount of cover.

How it works

• The term. You choose how long the cover lasts, often to match a need: until the children finish school, or until a housing loan is paid off.
• The amount. The sum assured is the amount paid on death to the beneficiaries you name.
• Level or decreasing cover. With level cover, the sum stays the same for the whole term. With decreasing cover, it falls over time, often in step with a loan balance.
• Renewal. Some policies can be renewed at the end of the term without new health questions. The premium is then based on your age at renewal, so it goes up.
• Conversion. Some policies let you switch to a permanent policy, such as whole life, before the term ends, without new health questions.
• The contestability period. Until the policy has been in force for two years during the insured person’s lifetime, counted from issue or the last reinstatement, the insurer can still contest it for concealment or misrepresentation on your application. After that, it cannot (Insurance Code Sec. 48). Suicide is covered once the policy has been in force for two years, or a shorter period if the policy says so, and suicide committed while insane is covered whenever it happens (Sec. 183). See contestability period.
• The grace period. After the first premium, you have 30 days or one month to pay each premium while the cover stays in force (Sec. 233(a)). Because a term policy has no cash value, the cover stops if a premium is still unpaid after that.

How much cover

One common way to size term cover is the needs method. Add up what your family would need if your income stopped, then take away what they would already have.

1. Yearly spending your income pays for, times the number of years the family would need it.
2. Debts that would have to be paid, such as a housing loan.
3. Big costs to come, such as the children’s schooling.
4. Take away savings, other life cover, and benefits the family can count on, such as SSS death benefits.

Worked example (invented figures, to show the method only). A household spends PHP 300,000 a year that one income pays for, and would need it for 10 years: PHP 3,000,000. There is a housing loan of PHP 1,000,000 and schooling costs of about PHP 500,000 still to come. That makes PHP 4,500,000. Savings and other cover come to PHP 500,000. The method suggests cover of about PHP 4,000,000. Your own figures will be different.

Term vs whole life

Scroll the table sideways for more

See whole life insurance.

Cover while working abroad

If you work abroad, read how the policy treats it before you buy:

• whether it covers death in the country where you work, and while travelling;
• whether some jobs (for example at sea or in construction) or some countries are excluded or need extra premium;
• whether you must tell the insurer when you move abroad or change jobs.

Answer every application question truthfully, including about your job and where you live. A wrong answer can let the insurer contest the policy during its first two years.

Before you sign

Where a free look period applies to a product, the Insurance Commission’s rules set its length: 15 days from receiving the policy for cover longer than six months, five days for cover longer than 30 days up to six months, and none for 30 days or less, with a full refund if no claim has been made (IC Insurance Memorandum Circular 2023-01). Ask the insurer whether the policy has one; the policy states it. Read the policy in that time.

For cover that pays only for accidents, see accident insurance.

This page explains how term life insurance generally works. It does not describe any company’s product.