Term Life Insurance
Term life insurance provides life insurance coverage for a specified period of time. After the term ends, the client can either drop the policy or pay additional premiums to continue the coverage. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term life insurance is often the most inexpensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis.
Term life insurance builds no cash value, unlike permanent life insurance products such as whole life, universal life, and variable universal life. Term life insurance functions in a manner similar to most other types of insurance in that it satisfies claims against what is insured if the premiums are up to date and the contract has not expired, and does not expect a return of premium dollars if no claims are filed. Most term life insurance carriers offer additional riders that increase the insured's protection against risk.
Though annual renewable term insurance is available, the much more popular product is guaranteed level premium term life insurance, where the premium is guaranteed to be the same for a given period of years. The most common terms are 10, 15, 20, and 30 years.
With this type of product, the premium is the same each year, and is based on the summed cost of each year's annual renewable term rates, with a time value of money adjustment made by the insurer. Longer terms have higher premiums because individuals are more expensive to insure as they get older. Most carriers include a renewal option and allow the insured to renew for a maximum guaranteed rate if the insured period needs to be extended.