What Are the Characteristics of Term Life Insurance?

Term life insurance covers an individual over a specific period of time at a fixed rate of payment in case of death. When the term ends, coverage is terminated unless the policy is renewed or replaced by a new policy.

Term life insurance offers a wide range of protection options while guaranteeing security for beneficiaries if the insured passes away within the terms of the coverage. Term life insurance can stand alone or function as a supplementary policy during a time of significant financial engagement, like having a child in college. Policies provided by employers are often term policies, intended to cover an individual until the age of retirement or employment ceases. Term insurance is far more affordable than whole life insurance, making it preferred in many circumstances.

There are three common forms of term life insurance: annual term, limited term and return premium term. Annual term life insurance covers a single year. Limited term policies remain effective for a specific number of years, often between 5 and 30. A return premium term policy mimics a limited term policy, but instead of losing the premiums paid when the policy expires, some or all of the premiums are repaid if the insured outlives the policy. This provides an incentive for individuals who do not anticipate death within the time period. Consequently, premiums in these policies tend to be higher than standard term insurance policies.