Term life insurance is one of the more economical life insurance products. It protects a fixed term (i.e., number of years) of an individual’s life. Policy lapses when the term is completed or the premiums are no longer paid. Some carriers offer a paid-up policy if a policy lapses due to a loss of premium. The face value will be reduced and generally the policy must be maintained for a certain number of years before this option becomes available. Many term policies may be extended after the term if the requirements of the carrier are met.
This product is attractive to individuals and families on a limited budget for life insurance premiums.
Level Term: Level term life insurance provides the insured with coverage for a specified period of time, typically 10, 15, 20, 25, or 30 years. The premium is calculated based on the age and health of the insured. The insurer levels out the premium payments by charging more at the beginning of the policy than mortality costs require so the premium payments are fixed and guaranteed for the term.
Yearly Renewable Term: A yearly renewable term (YRT) policy has no specified term and is renewable every year without evidence of insurability. The premiums on a YRT policy start off low and increase each year because they are based on the insured’s attained age. Although there is no specified term with a YRT policy, premiums can become prohibitively expensive for those at later ages, making it difficult to maintain.