Term Life Insurance: Which Type is Right for You?

By Tes Kurtz on December 21st, 2009

Generally speaking, there are three types of term life insurance from which to choose:

  • Level term insurance
  • Decrease term insurance
  • Annual renewable term insurance

Level Term Insurance

With level term insurance, the death benefit protection you purchase is fixed, and remains the same for the entire term period. These term periods vary, but the most common are 10, 15, 20, and 30 years.

Level Term Insurance Premiums

Premiums, payments you make to buy and keep your policy in force, differ depending on the guarantee in your policy. Some insurers guarantee level premiums throughout the life of the policy, while others guarantee premium amounts for a specified number of years. Still others do not come with a guarantee at all.

The insurer determines the yearly premium based on the sum of each year's annual renewable term rates divided by the number of years in the term; included in that average is your age. As with any life insurance, premiums increase with age because of the higher risk of mortality.

Option to Renew

Many level term policies include a renewal option. This enables you to renew your policy for a maximum guaranteed rate should you need to extend your coverage. Because you are older, the annual premium is likely to increase.

Remember to review your policy before signing, to confirm whether evidence of insurability is required to renew your term life policy. This clause becomes necessary only if your health deteriorates significantly while your policy is in force. If you have to provide proof of insurability again, poor health at the end of your term may prevent an insurer from renewing your policy.

Decreasing Term Insurance

Also known as mortgage life insurance, decreasing term insurance is what its name suggests: throughout the life of the policy, the amount of death benefit protection decreases at a predetermined rate.

Policy payout reductions can occur monthly or annually. Premiums for such a policy remain level over the term period, which can range from 1 to 30 years.

A Simplified Example of Decreasing Term Insurance

Let's say you purchase a 5-year decreasing term insurance policy with a payout of $10,000 during the first year. Each year the policy decreases by $2,000. At the end of year five the face value of your policy is zero and your coverage expires.

Why Purchase Decreasing Term Insurance?

The thought behind this type of term insurance is that as you get older certain liabilities no longer exist, and your family requires less money to maintain.

If you do not have any other form of life insurance, a decreasing term insurance policy is generally not an advisable route. However, decreasing term insurance could be a good option for you if you have financial obligations, such as a mortgage or other amortized loan that decreases over time.

In fact, the most common reason for acquiring decreasing term insurances is in the form of mortgage life insurance. When decreasing term insurance is purchased to cover a mortgage, the policy payout goes straight to the remaining balance on your home loan.

Annual Renewable Term Insurance

Annual renewable term (ART) provides security in the form of a guaranteed insurance. Even though contracts are renewed on a yearly basis, you are guaranteed future insurability for a specified number of years--typically 10 to 30 years. The exact number of years set by an insurer is influenced by your age.

As with other life insurance, age is also factored into your premium. The longer you use annual term insurance, the more it costs. Premiums are paid every year based on a one-year contract, and each year those premiums rise as you age.

This yearly rise in premiums is the biggest difference between ART and level term insurance. It is important to keep in mind that the primary purpose of annual renewable term insurance is to accommodate short-term insurance needs.

Based on your situation and needs, there are a several options when it comes to term insurance. Whatever type you ultimately select, term life insurance is usually the most inexpensive life insurance option. Compare quotes from multiple insurance companies to choose the best policy for you and your family. Just enter your zip code to get started.

Source :

Get Free Life Insurance Quotes
Enter Zip code :
Featured Insurance Quote
Facebook 470 flares Google+
470 flares ×