The Different Types of Term Life Insurance: Which One is Right for You?

Shawn Plummer

CEO, The Annuity Expert

Many types of term life insurance policies are available on the market today. So, which one is right for you? That can be difficult to answer without knowing more about your needs and goals. This guide will discuss the eight most common types of term life insurance policies. We will also help you decide which type of policy is best for you.

What is Term Life Insurance?

Term life insurance is a type of life insurance policy that provides temporary coverage for a specific period, typically 10, 20, or 30 years. The policy is designed to pay a lump sum to the beneficiaries if the insured person dies during the term of the policy. Term life insurance is typically less expensive than other life insurance policies, such as permanent life insurance. This is because term life insurance policies do not have a cash value or investment component.

Which Type of Term Life Insurance Policy is Best for You?

The best type of term life insurance policy for you depends on your needs and circumstances. A level term life insurance policy may suit you if you want a fixed amount of coverage for a specific period. If you have a mortgage or other outstanding loan that you want to cover, then a decreasing term life insurance policy may be a better option. If you want to have the option to renew or convert your policy in the future, then a renewable or convertible term life insurance policy may be more suitable.

Benefits of Term Life Insurance

Term life insurance has several benefits, including:

  • Affordability: Term life insurance offers a more affordable solution for many individuals than permanent policies, making it the go-to choice for budget-conscious shoppers.
  • Flexibility: Term life insurance policies are available for a wide range of coverage amounts and policy terms, so you can choose a policy that fits your needs and budget.
  • Easy to Understand: Term life insurance policies are easy to understand, with no complicated investment or cash value components.
  • Peace of Mind: Knowing that your loved ones will be financially protected in the event of your unexpected death can give you peace of mind.
  • Tax-Free Death Benefit: The entirety of the death benefit your beneficiaries will receive is generally exempt from taxes, allowing them to use it for any expense they may have, pay off debts, or invest in their future.
  • Simple Application Process: Applying for term life insurance is typically a straightforward process that can be completed online or over the phone.
Types Of Term Life Insurance

Renewable Term Life Insurance

Renewable term insurance is a policy that provides for a set period or “term” and may be renewed at the end of that period without proof of insurability. Renewable term policies might restrict the number of renewals or an age beyond which renewals are not permitted. The renewal premium will be calculated based on the insured’s current age.

Annual renewable term (ART) insurance is a popular, less expensive form of renewable term coverage.

Nonrenewable Term Life Insurance

A nonrenewable term policy is issued for a specified term and may not be renewed at the end of the term.

However, an insured may always apply for a new policy at the end of the term, but there are no guarantees, and the risk is based on current underwriting standards.

Convertible Term Life Insurance

A convertible term policy enables a policy owner to exchange or convert temporary coverage for permanent insurance without producing proof of insurability.

The policy must be converted before the expiration of the term. The premium is determined by attained age when a policy is converted.

Reentry Term Life Insurance

A reentry term insurance policy allows the insured to offer evidence of insurability after the term and apply for reduced premium rates lower than the guaranteed rate available for a renewable term policy.

Level Term Life Insurance

A level-term policy is a life insurance policy where the face amount (the amount paid out to your beneficiaries if you die while the policy is in effect) stays the same for the entire term of coverage. The premiums (the amount you pay each month to keep the policy in effect) may increase yearly or be leveled for the entire term.

Decreasing Term Life Insurance

A decreasing term policy is a type of life insurance that starts with a high face amount (the amount the policy will pay out if the person dies while it is in effect) and then declines yearly. This type of policy is suitable for many needs that go down over time, such as protecting the unpaid balance on a mortgage.

Increasing Term Life Insurance

Increasing term insurance starts with a low amount of protection. Then, the face amount gets bigger over time. Increasing term insurance can sometimes be sold as a rider to another policy. This will give you an extra death benefit equal to your total premiums.

Different Types Of Term Life Insurance

Interim Term Life Insurance

When a person wants immediate protection and is thinking of starting a permanent insurance policy soon, an interim term policy may cover the period before permanent protection begins.

The interim term is a type of protection that converts automatically after a specific time. This time is usually around 11 months, but it can vary depending on the company.

The price of temporary coverage is based on how old you are when you get it. The price of permanent coverage is also based on how old you will be when it starts.

Return of Premium Term Life Insurance

Return of premium term life insurance returns all premiums paid in a lump sum if you outlive the term. If you cancel your policy early, you could return a partial amount of the premiums paid.

Mortgage Redemption Insurance

The mortgage redemption policy is insurance that will help you pay off your mortgage if you die before the loan is paid off. The amount of insurance will be enough to cover the unpaid mortgage.

Deposit Term Insurance

Deposit term insurance is a level-term insurance policy with a much higher premium for the first year than reduced in subsequent years.

Who has the Option To Renew A Renewable Term Policy?

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Types Of Term Life Insurance
Types Of Term Life Insurance

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Frequently Asked Questions

Which component increases in the increasing term insurance?

The death benefit is the main component of increasing term life insurance policy. As you age, the death benefit will increase, providing your loved ones with more financial protection in the event of your passing.

What are the four types of term life insurance?

You have four distinct options if you’re looking for term life insurance. Level Term Plans are the most basic and straightforward form of coverage, while Increasing Term Insurance provides protection that grows over time. In addition, decreasing Term Insurance offers decreasing coverage as the years go on. Return of Premium plans allows policyholders to get a portion or all of their premiums back when their contract ends. Lastly, Convertible Term Plans allow customers to switch from term insurance to another type of plan if desired.

What is the most common term of life insurance?

Opting for a 20-year term life insurance policy is the most favored option and can provide financial security during new beginnings, such as parenthood or marriage. On the other hand, 30-year term life insurance will offer more excellent coverage to tackle significant long-term debt obligations like mortgage or student loan payments.

What is the most common term insurance?

Permanent life insurance may come with a higher premium but is usually accompanied by cash value. So what’s the most popular kind of coverage? Policygenius data reveals that 20 years is the predominant term length for term life insurance policies.

At what age does term life insurance end?

Your term life insurance policy can be renewed annually until age 95, granting you peace of mind and financial protection.

Is whole life better than term life?

When considering your life insurance options, it is clear that whole life offers several advantages over term policies. Whole life is permanent, which provides you and your family with financial security in the long run. Additionally, a cash value investment component allows for further wealth protection in times of need. With its many benefits, choosing whole-life insurance ensures sound peace of mind now and into the future.

*Disclosure: Some of the links in this guide may be affiliate links. I may receive a commission at no cost to you if you purchase a policy. It helps us keep the lights on!

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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