Types of Life Insurance

Term life insurance provides protection for a specified period of time. A death benefit is paid to the beneficiary if the insured dies within a specified period of time while the policy is still in force. Many term life insurance plans can be converted to permanent life insurance plans without evidence of insurability. Two types of term life insurance are yearly renewable term and level premium term.

Yearly renewable term life insurance has premiums that are initially low; however, the premiums increase substantially as the insured gets older. These plans have diminished in popularity due to the introduction of level premium term life insurance.

Level premium term life insurance has premiums which remain level over a specified period of time. These plans have premiums that remain level for a period of 5, 10, 15, 20, 25, and 30 years. After the initial level period expires, the annual premium increases each year, subject to a guaranteed maximum.

Although the initial premium of a level term policy is higher than the initial premium of a yearly renewable term policy, the level term policy generally costs much less over a specified period of time. For example, compare the premiums between a yearly renewable term plan and a 20-year level premium term plan for $500,000 of life 

The cash outlay of the level premium term is less than 1/3 of the total cash outlay for the yearly renewable term. 

In general, term life insurance is suitable when your life insurance needs are temporary or your life insurance needs are long-term but your budget does not permit the higher premiums of permanent life insurance. In general, term life insurance is suitable when your life insurance needs are temporary or your life insurance needs are long-term but your budget does not permit the higher premiums of permanent life insurance. 

See Also:

Return of Premium (ROP) Term Life Insurance

Whole Life Insurance

Universal Life Insurance

Variable Life Insurance

Variable Universal Life Insurance

Second-to-Die or Survivorship Life Insurance