Types of Term Life Policies

You can get two basic kinds of term life insurance: decreasing term and level term. Today, most people buy level term policies. The words “decreasing” and “level” indicate the amount of death benefits available during the policy term. Level term policies pay the same death benefit, regardless of how much time has passed in the covered term.

Common level term insurance durations:

  • Renewable annual (yearly) terms
  • Renewable 5-year terms
  • 10-year terms
  • 15-year terms
  • 20-year terms
  • 25-year terms
  • 30-year terms
  • Terms that end at a certain age (typically 65)

Yearly renewable terms were once quite popular; however, insurers sell few of these policies today. Nowadays, 20-year terms are the most common.

Most insurers won’t sell term life insurance for terms that end after the applicant turns 80. However, if you have a renewable term life insurance policy, it can stay in force for additional terms (up to a specified age), even if the insured persons’ health condition would prevent them from getting a new term life policy.

Insurers typically set policy premiums by considering an applicant’s health condition and age at the beginning of the policy term; premiums remain the same (hence, the name “level”) for the entire term. For example, the premiums for a 5-year renewable policy would stay level for 5 years. After that, the insurer would set a new rate based on the insured person’s older age (this would repeat at the end of each 5-year term). Longer term life policies may guarantee premiums won’t increase for the entire term; however, other policies don’t offer this protection (meaning your insurer could raise your rate at certain points during your policy’s term).

Some term life policies are “convertible,” meaning the policy owner can switch it to a permanent life insurance policy without providing further documentation to prove they’re still insurable.

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“Return of Premium”

Many term insurance policies, such as auto and homeowners insurance don’t offer premium refunds if you don’t make a claim by the time your policy expires. You simply pay for protection; if you don’t need to use it, you’ve still gained the benefit of peace of mind.

However, certain term life insurers offer term life policies with “return of premium” features. These policies typically have higher premiums than standard term life policies; insurers usually require you pay your policy premiums for the entire term – or forfeit your “return of premium” benefits. Some insurers offer policies which commit them to returning your base premium only – not your extra premiums. However, other insurers offer policies in which they agree to return both kinds of premiums.
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425 South Orange Street
Missoula MT 59801

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