Term life insurance (rizikové životní pojištění) protects your loved ones in the event of your death. It also covers you if illness, injury or disability causes you to lose your income from employment. The product also suits you if you want to assign the policy for the benefit of another party (to secure a mortgage). Term life insurance has no savings component. This means that all the money goes towards covering the insurance protection and the fees. If no event occurs during the insurance period, you won’t get any money back at the end.
💡 Tip: Check out the most popular modern life insurance in the Czech Republic.
Term life insurance
Term life insurance only guarantees insurance protection and doesn’t offer any growth of your money. The parameters of this product are set individually according to the client’s needs. The premium and the length of cover mainly depend on how much disposable income you have, or the level of your liabilities. You can add further riders to your policy and so increase your insurance protection.
Advantages and disadvantages of term life insurance
Among the advantages are:
- a guaranteed sum insured in the event of death,
- the option of a fixed or decreasing sum insured,
- extending the scope of cover with additional riders,
- the option of taking out cover for just one year,
- the policy is set up according to your individual needs.
The disadvantages of term life insurance include:
- it doesn’t offer any growth of your money,
- if you stop paying premiums, the insurer is entitled to the premium until the end of the insurance period. The policy only ends once the insurer has sent a reminder.
The insurer pays out the sum insured either as a lump sum or as repeated payments. You can’t deduct the premium you pay for term life insurance from the personal income tax base.
Life insurance is always a judgement call. Generally, it pays off for people who aren’t great at saving and setting money aside. They can pay for life insurance every month and are covered if they suddenly lose their income or run into other complications. For people who have more money and could comfortably live off their savings for, say, 16 months, it pays off to invest and use one of the investment platforms. There are several advantages to this. If they’re injured, they can simply withdraw the money they’ve invested.
What other risks does it cover?
The death of the client is one of the most common reasons for taking out this type of policy. It’s precisely the prospect of losing the breadwinner and the impact of debt on the family that often prompts many of us to consider term life insurance. Besides this, banks also offer other riders:
- incapacity for work – if you’re on sick leave, the insurer pays you (usually from the 15th day of incapacity) the agreed daily benefit,
- disability – in this case, the payout covers a long-term loss of income and other costs linked to your new life situation,
- serious illness – this rider provides money for treatment, or tops up your finances during treatment,
- hospitalisation – if illness or injury puts you in hospital, the insurer pays you money for every day you spend there,
- permanent physical damage after an injury – mainly restrictions to the musculoskeletal system (or damage to an organ) that don’t result in disability.
Price
When taking out a policy, you need to set all the important parameters. Before you decide on a specific product, you need an overview of your financial situation. Work out all your income and expenses and use that to decide on a sum insured that you can afford to pay while still keeping a financial reserve. Bear in mind that if the event the insurance was set up for (death, permanent physical damage) doesn’t happen and the insurance period runs out, you’ll never see that money again. That’s why you should only pay for insurance you can afford.
Decreasing sum insured
Most domestic Czech insurers offer the option of a decreasing sum insured. Our expenses change over the course of our lives, and the price of our term life insurance adjusts to match. People take out term life insurance because, when the breadwinner dies, the family loses income it was counting on. This is mostly money that covers costs, including a home loan, and provides for the children. Generally speaking, the sum insured covers the outstanding debt and lets the children finish their studies.
Once our children become independent and the outstanding mortgage balance starts to shrink, our expenses fall too. This means that the amount we’d need in the event of an unexpected event won’t be as high as when we were supporting not only ourselves but our children as well. That’s why insurers offer the option of a decreasing sum insured, so that we don’t set aside a disproportionately large amount.
What affects the price of term life insurance?
Because the policy is tailored individually to each person, the insurer mainly takes into account:
- occupation – the riskier your job, the higher the premium,
- age – a higher age mainly means a higher probability of illness and death, so you pay a higher premium,
- health – your overall health also plays an important role when taking out term life insurance, and the insurer reviews it before the policy is signed.
Unlike investment life insurance, term life insurance is cheaper because it has no savings component.
Exclusions on life insurance
When taking out a policy, you always need to reckon with exclusions, that is, a list of situations and conditions in which the insurer won’t pay out. The list of exclusions varies by insurer. Most commonly:
- suicide during the first two years after the policy is signed,
- death in the first two months after the policy is signed.
High-risk and extreme sports
If you have accident or life (or travel) insurance, it usually covers ordinary sports such as running, swimming, volleyball, dancing, yoga and so on. These sports don’t expose you to direct danger. There are, however, sporting activities that fall under the exclusions.
If high-risk sports aren’t included in your policy, the cover doesn’t apply to them. For extreme sports, there’s an option to take out cover for selected sports, but only under certain conditions. There are also so-called uninsurable sports, for which cover simply isn’t possible. That’s because they’re too dangerous.
High-risk sports
High-risk sports include, for example:
- American football,
- ice hockey,
- alpinism, ski mountaineering,
- horse racing, horse riding,
- go-karting,
- riding a halfpipe (inline skating, skateboarding),
- motorised water sports,
- surfing,
- paintball,
- mountain bike downhill,
- speleology,
- parachuting,
- high rope courses (up to 10 metres),
- high-mountain hiking such as Via Ferrata up to difficulty grade D, and others.
Extreme sports
Insuring extreme sports is possible under certain conditions. These include, for example:
- freestyle skiing,
- combat sports,
- mountaineering,
- stunt work,
- ski jumping,
- yachting, sea sailing,
- off-piste skiing and snowboarding, and many others.
Uninsurable sports
Uninsurable sports include:
- aerials,
- base jumping,
- buildering,
- cave diving,
- cliff diving,
- drag racing,
- freediving,
- ice diving,
- aerobatics, air sports,
- sky surfing,
- technical (scuba) diving, and others.
