Last updated on March 24,
This is as simple as life insurance gets and is the
easiest to understand. You insure your life for a
certain amount of money for a fixed period of time --
one year, five years or more -- and pay an annual
premium based on your age and the amount of coverage
you're buying. There's nothing fancy about term
insurance. It has no savings or investment features
built into the rates, making it the purest form of life
insurance around and thus the cheapest for a given
amount of coverage.
Types of term insurance
Annual-renewable term. You buy a
series of one-year policies and the insurance company
guarantees you the right to renew the coverage each year
without having to undergo an additional medical exam.
Your premium rises with each new policy year.
Guaranteed-level term. Instead of
rising each year, premiums start out a little higher but
stay level for five, ten, 15 or even 20 years or more.
At the end of the period, you have usually paid less
than you would have under an annual-renewable term
policy. Insurance companies developed guaranteed-level
term policies to discourage customers from hopping from
one company to another each year at policy renewal time,
chasing the lowest rates.
Declining, decreasing or reducing
term. The amount of coverage gradually declines
according to a fixed schedule over ten, 15, 20 or more
years. Mortgage insurance policies, which pay the loan
balance when the policyholder dies, are a common form of
Convertible term. For a higher
premium than regular term, a convertible policy can be
rolled into a whole-life, or cash-value, policy without
your having to meet medical standards at the time of
conversion. Most companies offer policies that are both
convertible and renewable up to specified ages or for