Term Life Insurance is a type of life insurance that provides coverage for a specified period of time, such as 10, 20, or 30 years. If the policyholder dies during the term of the policy, the beneficiaries receive a death benefit. If the policyholder does not die during the term of the policy, the coverage ends and there is no payout. Term life insurance is generally less expensive than permanent life insurance, such as whole life or universal life, because it provides coverage for only a specific period of time.
The Two Types
There are two main types of term life insurance: level term and decreasing term.
- Level term: With this type of policy, the death benefit remains the same throughout the term of the policy. This means that if the policyholder were to die 10 years into a 20-year level term policy, their beneficiaries would still receive the full death benefit amount.
- Decreasing term: With this type of policy, the death benefit decreases over time. This type of policy is often used in conjunction with a mortgage, as the death benefit decreases as the outstanding mortgage balance decreases.
Additionally, there are other variations of term life insurance policies like :
- Return of Premium Term Life: With this type of policy, policyholder will get back the premium amount paid during the term if the policyholder survives the term.
- Convertible Term Life: These policies allow the policyholder to convert to permanent coverage without providing evidence of insurability.
- Renewable Term Life: These policies allow the policyholder to renew the policy at the end of the term, typically at a higher premium rate.
Keep in mind that your financial advisor or insurance agent would be able to provide more details on the different types of term life insurance policies available and which one would be best for your situation.