Here is a detailed explanation of term life insurance policies.
Term life insurance provides a guaranteed death benefit for a specific number of years.
The death benefit is usually paid in one lump sum but it can be paid in the form of a monthly income.
There is no cash value but the premiums are much lower than those of cash value policies like whole life, universal life and variable life.
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Detailed Explanation Of Term Life Insurance
Note that if you click the links for each type of policy you will get a more detailed explanation of term insurance…each policy separately.
- Increasing Premium Term Life Insurance
In this explanation of term life insurance the increasing premium term policy is a good one to begin with.
This policy is sometimes referred to as the yearly renewable term policy or the annual renewable term. This is a one year term policy designed for people who have a short term need for life insurance.
You have the option of renewing this policy at the end of the year but at a higher premium.
You do not need to re-qualify for your policy. If you keep renewing each year the death benefit does not change…you renew with the same amount of life insurance.
As this is a term policy there is no cash value. You do have the option to convert to permanent life insurance.
- Level Term Life Insurance
In our explanation of term life insurance we can group the other level term policies together as the only differences are the number of years they last and the differences in the amounts of premium.
5 Year Term
The 5 year term policy has a level death benefit for the entire 5 year period in which the policy remains in force. The premiums never change…they too remain level.
You also have the option of converting the policy to permanent life insurance such as universal life insurance, variable universal life insurance, variable life insurance or whole life insurance.
10 Year Term
10 year level term lasts for 10 years with a level premium and a level death benefit. The owner of this policy also enjoys the conversion privilege.
15 Year Term
This policy also has a level death benefit and a level premium plus a conversion privilege.
20 Year Term
The 20 year term policy is one of the most popular term policies available. In any explanation of term life insurance special attention must be paid to this one as it is probably the most liked term policy available.
It has a guaranteed level death benefit for 20 years and also a guaranteed level premium more often than not.
Some companies begin with a lower than usual premium which is maintained for 5 or 10 years and increase the premiums thereafter.
Usually you can, if you would, convert this policy to permanent life insurance at any time during the life of the policy, however, because of the length of the term period some companies limit the conversion period to less than 20 years.
You may have to convert the policy, if you wish to do so, within 15 years.
30 Year Term
The 30 year term policy is similar to the 20 year term but it lasts 10 years longer and the premium is slightly higher.
- Decreasing Term Life Insurance
One of the least expensive term life insurance policies is the decreasing term life insurance policy. The premiums are level for the life of the policy but the face amount decreases every year in a uniformed manner.
This policy is used a lot to pay off the mortgage balance owed on a house in the event of the death of the home owner.
I hope this explanation of term life insurance will be of some help.