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Types of Term Life Insurance

There is a lot of information out there regarding term life insurance. Unfortunately, most of it is published by insurance agencies that have their own agenda to promote. Few offer a pure, unbiased, and accurate definition of term life insurance.

The “term” in term life insurance indicates a set period of time. During this time period, the premium is fixed – meaning that it does not change throughout the length of the term. The length of the term depends on several factors, including the underwriter and the policy itself. For instance, a term life policy that has a death benefit may remain static for up to 30 years.

Term life insurance is insurance coverage without the expensive extras that often come with universal or whole life insurance plans. Because the costs can be kept to a minimum, term life insurance is a viable coverage option for anyone looking to protect their loved ones on a budget.

There are five types of term life insurance.

  • Level: The coverage and premiums do not change for a set period of time, usually in increments of five to ten years.
  • Renewable: At the end of the term (usually within one to five years of the end), the policy can be renewed. The insured does not have to qualify for a renewable policy by proving he or she is in good health or insurable.
  • Decreasing: Benefits decrease gradually over the coverage term while the premiums remain the same.
  • Convertible: The policy can be converted to a cash value or permanent policy, but the insured is not required to prove insurability. The premium often increases when a policy is converted because permanent policies generally cost more than term life policies.
  • Return of Premium (ROP): While most term life policies do not provide a refund of the monthly premiums that are paid throughout the term, an ROP policy does. The premiums for an ROP policy are returned to the policy holder after certain fees, administrative charges and other costs have been subtracted. ROP policies typically have premiums that are significantly higher than policies that do not offer this option.

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