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
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 insurance.
PREMIUMS FOR $500,000 OF LIFE INSURANCE, 35 YEAR OLD,