Term Life Insurance – Familiarize the Tree Basic Forms

Term Life insurance has been with us for a long time. It is the least expensive of all the life insurance policies. Term life insurance is life insurance that provides protection for the named insured over a stated period. That is what differentiates it from other forms of life insurance. Term insurance has no equity or cash value accumulation and so it is primarily purchased for the security provided by the death benefit. There are three basic forms of term life insurance.

1. Decreasing Term – This policy is most commonly associated with mortgage protection insurance. The face amount decreases over a stated period of time. A thirty-year mortgage for a homeowner is appropriately insured by a thirty year decreasing term policy for the same mortgage amount. The mortgage balance and the term policy decrease at about the same rate and so the homeowner can be assured that his home will be paid for whether he or she lives or dies.

2. Level Term – Level term life insurance also provides protection for a specific time period. The face amount remains level throughout the stated period. This policy is often purchased for short-term debt or intermediate term debt. You can purchase 5, 10, 15 and 20 year term policies from most insurance companies.

3. Annual Renewable – This form of term insurance is the least recognized of all term policies. It provides a level amount of insurance but the premium increases each year at the policy renewal date. The premiums can be very low at first but can escalate into very high premiums as the insured gets older.

All of these term life insurance policies have their advantages but the common denominators that give term life insurance its definition remains the same. The policy is always for a stated period and there is no equity or cash value accumulations. Those two features define term life insurance.