- What are the different types of term life insurance policies?
- July 3, 2013
In summary, term insurance provides coverage for a specific period of time. It pays a death benefit only if you die during the specified term and have paid the required premiums.
Term insurance typically provides the largest amount of death protection for your premium dollars. Most term policies are guaranteed renewable for one or more additional terms, even if your health has changed.
Every time you renew a term policy, the premium payment will increase, but usually remains level for the rest of the term.
If you are considering term insurance, be sure to check the premium schedule at the specified renewal age, and find out for how long the policy can be renewed, if you decide to keep it.
Many term insurance policies can be exchanged for a permanent policy during the term period. This conversion eligibility could be very important, especially if your health deteriorates and leaves you unable to qualify for a new permanent policy.
Before applying for a policy, be sure to check the conversion eligibility period as you renew the coverage.
Here are some common types of term insurance:
Annual Renewable Term (ART)
Also, known as yearly renewable term, “YRT” or “ART” – features an annually increasing premium and a level death benefit.
Level Premium Term
Features a level premium for a specified number of years – the premium may or may not be guaranteed to remain level. At the end of this level premium period, some policies allow you to renew coverage for another term at very favorable rates, provided that you meet the company’s underwriting criteria (i.e., your health remains good).
This type of coverage is known in the industry as “re-entry” term.
However, if you don’t meet the company’s current underwriting standards, you will not qualify for the re-entry term rates. You can still keep the coverage in-force for a specified period of years, but you’ll be paying a higher premium rat me.
Decreasing Term Insurance
Sometimes known as “Mortgage Insurance” because it is often used for a mortgage cancellation in the event of a premature death of the family’s primary wage earner.
It features a level premium and a decreasing death benefit. Since coverage decreases gradually over the years, the premium will be considerably lower than level of premium period.
Return of Premium Term
Allows the policyholder to receive the sum of premiums paid – sometimes with interest – after a certain term of years, usually the end of the level of premium period.
About Tony Steuer
Noted insurance author Tony Steuer has spent over 25 years in the life insurance industry. Steuer’s leadership roles include serving on the California Department of Insurance Curriculum board and the National Financial Educator's Council Curriculum Advisory Panel as well as having served as President of the San Francisco Chapter of the American Society of CLU & ChFC, President of the leading Life Insurance Producers of Northern California, and as a board member of the San Francisco Life Underwriters Association. Mr. Steuer is the author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, The Questions and Answers on Life Insurance Workbook and The Questions and Answers on Disability Insurance Workbook - the first two were awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy. Steuer holds a Chartered Life Underwriter (CLU) designation and also holds the Life and Disability Insurance Analyst License, a designation that is held by less than thirty people in California.
Questions & Answers on Life Insurance by Tony Steuer, CLU, LA, CPFFE is licensed under a Creative Commons Attribution 3.0 Unported License.