How it works:
Term life insurance lasts for a specified period of time, usually 1 to 30 years. The most common terms are 10 years and 20 years.
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Term life policies pay beneficiaries the face value if the insured dies during the term. For example, a 20-year term policy with a face value of $100,000 would pay $100,000 if the insured died any time during those 20 years.
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Generally, term life insurance costs less than permanent life insurance.
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| At the end of the term, the insured is no longer insured, and a death benefit is not paid. Some policies are renewable or can be converted to permanent life insurance. |
Term life insurance has 3 common features:
1. Level
The annual premium paid by the policy owner stays the same. The face value of the policy also remains the same. Level term life insurance can last up to 30 years.
2. Convertible
Before the end of the term, the policy owner can often convert term life insurance into a permanent life insurance policy. For example, a 10-year convertible term life policy may be exchanged for permanent life insurance anytime before the end of year 7. The premium will usually increase when the policy owner converts to permanent life insurance.
3. Renewable
Term life insurance policies that are renewable allow the policy owner to renew the policy at the end of the term, up to a specified age limit (typically age 65 or 70).
For example a 10-year policy can be renewed for another 10 years. If renewed, a medical exam most likely will be required. The premium usually increases at renewal.
If the policy owner does not choose to renew for another 10 year term, they may have the option to renew annually up to age 95 without a medical exam. However, the premium will most likely increase each year.
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