Term Life Insurance is one of the purest forms of life insurance in the sense that it provides a level death benefit in exchange for a premium.
Death benefits for term life insurance are traditionally level, neither increasing nor decreasing over the term of the policy. This is in contrast to mortgage life insurance where the death benefit declines with your mortgage balance, or universal life insurance where the death benefit may increase over time with the investment portion of the contract.
Premiums are also normally level for the the term of the policy. Term life policies are normally categorized by the duration that premiums are projected to be level. Ten, twenty and thirty year term polices are all common, with the premiums for the policy being level for 10 years, 20 years, or 30 years respectively.
While in most cases the face amount of the policy will be guaranteed for the term, the premium may not be fully guaranteed. For example while many ten year term policies will also guarantee that the premiums will remain level for the full ten years, in other cases companies will agree to guarantee the premiums for only five years, after which time the premiums are only projected to be guaranteed – but may be increased or decreased by the company.
When shopping for level term life insurance policies, one should also consider the renewal premiums available at the end of the term. In the event that you are uninsurable at the end of the term you may be forced to retain your current policy at which point these renewal premiums will become very important. Some companies will offer another level term period without underwriting, others will provide a schedule of future premiums that increase every year. These annually increasing renewals can quickly become unaffordable leaving the uninsurable with a tough choice – continue without insurance or pay the higher premiums every year. A situation like this is one example of why even informed consumers should deal directly with a knowledgeable life insurance agent who can provide guidance on the vast array of term life insurance products in the marketplace.
Term life insurance makes sense for consumers looking to provide protection for mortgages, to maintain your family’s standard of living in the event of the death of a breadwinner, or for shorter duration insurance needs.