Definition of Term Life Insurance
Term life insurance is the most uncomplicated form of life insurance. You can take out a life insurance for different terms (five, 10, 20 or 30 years) or until a specified age. Most companies don't allow the life insurance term to extend beyond the insured person's 80th birthday. The premium is determined by the term of the policy and the age of the insured person. The longer the term and the older the insured person, the higher the premium. The insurance company is not liable to pay any benefits if the insured person dies after the term is complete.
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Renewable Term
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When the term expires on a renewable term life insurance policy, you have the option of continuing the insurance for another term or renewing it on an annual basis. The premium increases with each new term. The advantage of renewable life insurance is that your ability to renew doesn't depend on your health. You can renew the insurance even if you might not be eligible for a new policy because of health reasons.
Convertible Term
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Convertible term policies allow you to transfer your policy from a term insurance policy to a permanent insurance policy, given that you do so before the conversion period runs out. If you convert to a permanent policy within the allowed time frame, you are not required to present any additional information about the status of your health. The premium you have to pay for the permanent policy depends on your age at the time of conversion.
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Level or Decreasing Term
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For these kinds of term insurance policies, you pay a fixed premium every year. In a level term policy, the value of the insurance doesn't change over the period of the term, while for decreasing term policies, the value of the insurance decreases with time. These policies are traditionally used as mortgage protection, with the insurance value directly related to the mortgage value. In case of the insured's death, the insurance company pays mortgage costs.
Adjustable Premium
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Insurance companies don't have the right to increase later premiums for term insurance policies. Therefore, insurance companies have adjustable-premium insurance policies so they can offer you low initial premiums that can be changed in the future. Each adjustable-premium policy has a stated maximum possible premium, which cannot be exceeded.
Return of Premium
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The return-of-premium policy is a relatively new type of term insurance, and not all insurance carriers offer it. The policy costs a bit more than a typical term policy, but the insured receives a refund of the premiums paid if he is still living when the term expires. These policies are becoming more popular, because they are less expensive than permanent life insurance but still offer some cash value at the end of the policy.
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