Term Life Insurance
The most basic form of life insurance a consumer can purchase is referred to as term life insurance. Coverage is provided for a fixed term, using a guaranteed payment schedule. Term life insurance only provides a death benefit to the policy beneficiary and is considered the most efficient means of replacing lost income.
Term life insurance provides affordable income-replacement protection for a predetermined period of time. The premium on the policy is often guaranteed at the time the policy is signed. At the end of the premium guarantee period, usually 5, 10, 20, or 30 years, the policyholder can renew at higher premium levels.
Unlike other life insurance policies, term insurance only provides a death benefit to a beneficiary. As such, premiums are lower than whole or universal life policies, which have a cash value component too. For this reason, term insurance is not used for estate planning purposes.
The fact that term insurance policies offer lower premiums makes them attractive to individuals looking for temporary life insurance protection, or the most cost-effective way to ensure income continuation to beneficiaries.
Generally, term life insurance policies are sold in one of two forms:
- Annual Renewable: insurance for a term of one year, premiums are adjusted annually, and the policyholder is typically allowed to renew without providing a proof of insurability.
- Level Term: more popular with consumers than annual renewable term (ART), the policyholder is guaranteed a level premium for the duration of the policy’s term. As is the case with annual renewable, level term insurance often provides a renewal option without requiring a proof of insurability.