Types of Term Insurance:
Variations on term life insurance include options that meet the needs of business owners, separated couples, and mortgage holders. Let’s get into some details for the different types of term insurance.
Level
A level term policy is the most basic type of term insurance. The premiums never increase, and the amount of the death benefit remains the same throughout the entire term.
Term policies are typically sold with terms of five to 30 years, in five-year increments.
Some companies do offer single-year policies that renew annually, which is a type of renewable term life insurance. They’re technically level policies since the premium remains the same throughout the term. However, since each term is only one year, you may see annual rate increases.
Decreasing
Decreasing term insurance is sometimes called mortgage protection insurance. The benefit decreases every year of the term.
Ideally, you’ll be paying down the balance on your large debts (like a mortgage) during your life insurance term. As your debt obligation shrinks, so does the amount of coverage you need.
The premiums don’t decrease with the benefit as you might expect. Instead, decreasing policies offer a much lower annual premium from the beginning and stay level throughout the term.
Renewable
Renewable term policies allow you to extend or renew your policy for an additional term after the expiration date with no new medical exam.
Some renewable policies automatically renew every year up to a specific age (typically 65). Policies that renew annually usually see premiums increase each year as well.
Other policies automatically renew for your original term length once the first one ends.
Convertible
A convertible term policy lets you convert your temporary coverage into a permanent policy with the same face value at any time during the term, usually without a new medical exam.
Converting from term to whole insurance will increase your premiums (as discussed earlier). Some insurers also place age limits on conversions. Most won’t let you convert after age 65.
Return of Premium (ROP) Term Life Insurance
Return of Premium (ROP) term life insurance is a relatively new product that combines the advantages of traditional term life insurance such as affordable, guaranteed level premium periods (10, 20 or 30 years), with a return of premium feature.