All term insurance policies share certain characteristics. Term life insurance provides life insurance coverage for a specific time period (term). The face amount of the policy is paid if you die during the term of the policy. If you live longer than the term of the insurance coverage, nothing is paid.

However, within the broad category of "term insurance," there are several variations. Level term, decreasing term, and increasing term provide different benefit levels at different points during the term of the policy. Renewable term and convertible term provide options with regard to what happens at the end of the policy term. Depending on your situation, one type of term insurance may be more appropriate than the others.

Level premium term
Level term is the simplest and most common type of term insurance. It is what most people probably think of when they hear the term "life insurance." Like all term insurance, level premium term provides life insurance coverage for a specific time period. With a level premium term policy, the death benefit remains the same throughout the term of the policy. The premium payments also remain the same.

For example, say you purchase a $100,000 10-year level term policy. Your premium payment would be the same every month for the entire 10 years. If you died any time during the 10-year period the policy is in force, your beneficiary would receive $100,000.

Level term is most appropriate when your insurance need will remain the same throughout the policy term. If you still need insurance at the end of the term, premiums may be sharply higher when you apply for a new policy.

Decreasing term
Another common type of term insurance is decreasing term. With a decreasing term policy, the death benefit starts out at a higher level and gradually decreases over the life of the policy, following a schedule set by the insurer. The premium payments typically remain level throughout the policy term.

For example, you could buy a 20-year decreasing term policy with an initial face value of $100,000. The premium payment would likely be the same every month during the 20-year term. The death benefit would initially be $100,000. Over the 20-year term of the policy, the death benefit would gradually decrease. At the end of the 20 years, the death benefit would be quite low--maybe only $10,000, or possibly even zero. If you died while the policy was is force, your beneficiary would receive an amount equal to the current value of the policy.

Decreasing term is often used to cover mortgage or credit debt, because the death benefit decreases over time as the outstanding balance on the debt is reduced. The idea is that the beneficiary would use the death benefit to pay off the debt in the event of the insured's death.

Increasing term
Increasing term is a rarely used form of term life insurance. As the name suggests, an increasing term policy provides a death benefit that gradually increases throughout the life of the policy. Depending on the policy, you may be entitled to freeze the increases at any point during the life of the policy. Premium payments on an increasing term policy generally increase as the death benefit increases.

Convertible term
Convertible term policies contain a provision that allows you to convert the policy to cash value insurance (such as whole life, variable life, or universal life). Convertible life policies typically state that conversion must occur within a certain time after the policy is issued, or before you reach a certain age. Once the policy is converted, you enjoy all the benefits of cash value life insurance, including lifetime coverage, a more stabilized premium structure, and the tax-free buildup of cash value.

The premiums for convertible term can be typically higher than regular term, but one of the main advantages of convertible term is that you are not required to provide proof of insurability at the time of conversion.

Renewable term
Renewable term policies also allow you to continue your coverage without providing proof of insurability. With renewable term insurance, you are guaranteed the option to renew the policy when your current coverage period ends. Premiums on the renewed policy will typically be higher, because they are based on your age at the start of the renewed period.

Annual (or yearly) renewable term is a very common type of coverage. This type of policy is written to provide one year of coverage, with the option to renew at the end of that year. If you choose to renew the policy, you will not have to provide proof of insurability, but the new premiums will be based on your attained age. When employers provide life insurance as part of a benefits package, it is typically annual renewable term or five year renewable term.

Learn More...

Life Insurance Overview | Understanding The Basics | Term & Cash Value
Coverage Amounts | Reading Policies | Planning Concerns | Life Calculator | Life Glossary

Please Note: The information contained in this Web site is provided solely as a source of general  information and resource.  It is a not a statement of contract and coverage may not apply in all areas or circumstances.  For a complete description of coverages, always read the insurance policy, including all endorsements.