Term life insurance provides a specific amount of life insurance for a set amount of time. Because there is no cash accumulation on a term policy, the premiums are generally less expensive than permanent insurance.
Term life insurance gives you the most coverage for the price. However, not all term life insurance is the same. Here are some of the different types:
- Decreasing term life insurance has the same premium but has a decreasing death benefit. This type of insurance is also called mortgage insurance and is often sold by a bank or its affiliate when you get a mortgage. Generally, these policies have higher premiums, lack flexibility, and give less value than level term life insurance.
- Renewable term life insurance has a short term of 1 to 5 years, which can be renewed for additional terms. Although this may seem to give you flexibility, you need to know that the premium cost at each renewal will be higher. Additionally, you may find a level term life insurance policy is a better price and you can cancel it at any time.
- Return of Premium term life insurance will give you back your paid premiums if you outlive the term. However, these types of policies are significantly more costly and you must continue them for the full term if you wish to receive a complete return of your premiums.
- Level term life insurance is sometimes called guaranteed premium term insurance. Level term has the same premium and death benefit for a specific number of years, with terms of 5, 10, 15, 20, 25 or 30 years.
What is Term Life Insurance? The Best Choice and Its Advantages
Level term life insurance is usually the best choice because the face amount and premium don't change for the duration of the term period.
Because many companies offer level term policies of 10, 15, 20 and 30 years, these policies are competitively priced.
Another advantage of level term life insurance is that most policies offer a conversion option which allows you to convert this policy into permanent coverage, without going through underwriting or another medical exam, within a specified time period. This option can be very helpful if you have changes to your health later on.
The Bottom Line
What is term life insurance? is a complicated question. You will get the best life insurance for your situation if you let an expert independent life insurance agent help you. An independent agent can look at your insurance needs, explain your options and help you choose the best term life insurance for you.