Understanding Term Life Insurance Policies

Term life insurance policies are so straightforward in their description they are easy to understand. To put it simply…you pay a minimal premium per thousand on an annual, semi annual, quarterly or monthly basis. You die within the term that the policy is in force and the life insurance company pays your beneficiary the face value of the policy. In a nutshell that is how term life insurance policies work.

There are two basic types of term insurance policies. There is level term life insurance and there is decreasing term life insurance. A description of each type is as follows:

• Level Term Life InsuranceThe death benefit of a level term life insurance policy remains the same for the entire duration of the policy. Let us assume you bought a $150,000 10 year term life policy. For the entire 10 years you will have $150,000 of life insurance…as simple as that. The premiums unusually remain level, however, in some cases they increase depending on the life insurance company and the type of level term policy. Level term insurance policies can be purchased for durations of 5 years, 10 years, 15 years, 20 years, 25 years and 30 years. Some go as far as to age 65, age 80 or age 90.Increasing premium term life insurance is also a level term life policy. The premiums, however, increase every year. This type of policy starts out cheaper than other types of term policies but it will turn out to be very expensive over the years…if the insured lives for ten years or more.
• Decreasing Term Life InsuranceThe death benefit of decreasing term life insurance policies gradually decreases over the duration of the policy. These policies are quite inexpensive and are sometimes used to cover the balance owed on a mortgage. Whatever is owed on a mortgage will be paid off if the insured or mortgagee dies during the period that money is owed on that property.

These term life insurance policies, whether level term or decreasing term, can be converted to permanent life insurance while they remain in force.