What is term life insurance?

About term life insurance

Term life insurance is the most basic type of life insurance, and it only pays if the insured dies during the term of the policy. Terms can last for any length of time, but common terms are one year, 5-year, 10-year, 15-year, 20-year, 25-year, or 30-year policies or a term that ends when the insured reaches a specific age, usually 65.

Most term life insurance policies are renewable at the end of the term, although insurance companies will typically not sell term insurance for a term that ends after the insured’s 80th birthday.

Renewable term policies mean that the insured can renew at the end of the term, without having to prove health status. The option to renew is important for individuals whose health might disqualify them from getting a new policy. A convertible term life insurance policy is one that can be changed to a permanent policy without having to prove health status or insurability.

The two types of term life insurance are level term and decreasing term. Level term is the most common type of term insurance. This is insurance with a fixed benefit, one that is the same throughout the length of the term of the policy. Decreasing term is rarely purchased, but is insurance with a benefit that drops by a certain percentage, usually once each year, over the term of the policy.

For most term insurance policies, if the insured is alive at the end of the term, there is no refund of premiums paid. A return of premium term insurance policy will refund premiums, but this is usually a much more expensive option.