Term Life

Term life insurance is the second most basic type of life insurance. Term life insurance is the cheapest type of life insurance. Some life insurance companies offer very cheap term life insurance policies. If you are looking to buy term life insurance, compare term life insurance rates and compare term life insurance quotes from different term life insurance companies before you decide on one. It is also important to understand how term life insurance works.

What is term life insurance?

Term life coverage is a life insurance policy designed to pay a lump sum of money upon death during a specified period of time.

Example of term life insurance

An example of a term life insurance policy is: John purchases a 10-year term life insurance policy with a face value of $100,000. If John dies during the 10 years which term life insurance is effective, the life insurance company will pay $100,000 upon his death to his beneficiary. The amount of life insurance paid to John’s beneficiary is called ‘death benefit.’

If John does not die during the period which the term life insurance is in effect, then the life insurance company owes John nothing. All the premiums John paid to the life insurance company during the 10 years period would then be completely wasted.

Term life insurance is not an investment

Because no one will never recoup any money from the life insurance company unless they die within the time frame (in this case 10 years) of the term life insurance effective date, term life insurance is never used as an investment. 

Term life insurance may be purchased by:

• an individual directly (at individual rates),
• an individual through their employer (at group rates) or
• an employer (at either individual or group rates).

Types of term life insurance

Term life insurance can either be guaranteed Renewable or Convertible.

What is a guaranteed Renewable term life insurance policy?

A guaranteed Renewable term life insurance policy allows the life insurance owner to renew the term of the life insurance after the coverage period is up. In our example, John would have the option of renewing his term life insurance policy after 10 years if he is still alive. However, depending on the term of John’s term life insurance, John’s premium may increase when he renew the life insurance policy after 10 years. While the amount of term life insurance premium is not guaranteed, guaranteed Renewable means that John will qualify for the life insurance after 10 years.

What is a guaranteed convertible term life insurance policy?

A guaranteed Convertible life insurance policy therefore means that John has the right to convert the value of the term life policy into another type of policy before the expiration date. (Usually the type of policy must be agreed upon up front.)   

Among leading term life insurance companies are:

• Hartford
• Manulife
• John Hancock 
• First Penn Pacific
• Lincoln National