Types of Term Life Insurance

 

Term life insurance is one of the simplest and most reliable forms of coverage you can buy. Unlike permanent life insurance, term policies provide coverage for a specified period, usually between 10 and 30 years. Once that period expires and coverage ends, you can opt to renew or convert the policy.

Most types of term life insurance policies are designed to cover final expenses and outstanding debts in the event of your unexpected death. It will protect your family from unnecessary financial burdens, but you won’t receive any benefit if you outlive the policy term. 

If you need more long-term coverage, you can shop for convertible policies. These allow you to transfer coverage to a permanent policy when the term ends. However, you can also compare quotes for return of premium or decreasing term life insurance if you only need coverage for a short period.

This guide will give you a complete overview of the different types of term life insurance quotes you can get. We break down the buying process and compare sample rates so you can find the right policy type for your family.

Understanding the Different Types of Term Life Insurance

All term life policies follow the same basic model — coverage applies for a period of time, and policyholders receive no benefits if they outlive their term. However, different types of policies and policy riders can help save your benefits.

Here are the most common types of term life insurance:

• Level
• Increasing
• Decreasing
• Renewable 
• Convertible 
• Return of premium
• Living benefits

Some types of term life insurance will have higher annual rates but offer additional coverages you wouldn’t get with a standard or level policy. Let’s get into the details of these different term policies so you can choose the right kind of coverage.

Level Term Life Insurance

A level term policy is the most basic type of term insurance. It is often called guaranteed term life insurance because your rates never increase. The death benefit amount also remains the same throughout the entire term.

Level term policies are typically sold in increments of five to 30 years. One of the longest available is 35-year term life insurance. Some companies offer single-year policies that renew annually (a type of renewable term life insurance), but you may see your rates go up.

As you shop for level term life insurance quotes, you’ll notice that monthly rates also increase as you get older. This table shows how rates vary by age and gender on a 20-year policy:

Average Monthly 20-Year Term Life Insurance Rates by Age and Gender

Policyholder Age	$100,000: Male Average Term Life Monthly Rates	$100,000: Female Average Term Life Monthly Rates	$250,000: Male Average Term Life Monthly Rates	$250,000: Female Average Term Life Monthly Rates	$500,000: Male Average Term Life Monthly Rates	$500,000: Female Average Term Life Monthly Rates
25	$14.53	$12.70	$23.27	$18.72	$34.79	$27.39
30	$14.96	$13.22	$24.59	$20.44	$37.39	$29.59
35	$17.57	$15.40	$26.09	$22.19	$40.04	$32.19
40	$21.40	$18.62	$33.72	$28.49	$54.79	$45.69
45	$26.54	$22.97	$45.47	$37.42	$79.19	$66.14
50	$36.02	$29.32	$69.59	$54.59	$126.14	$96.99
55	$50.98	$38.11	$105.72	$78.97	$203.14	$143.99
60	$84.91	$60.20	$183.79	$131.17	$355.39	$248.84
65	$144.51	$97.44	$323.42	$220.99	$625.09	$432.84

Because life insurance quotes are dependent on age, level term policies are best for young families and those who can lock in cheaper monthly rates in their 30s.

Read more: What is level-term life insurance?

Increasing vs. Decreasing Term Life Insurance

With increasing term life insurance, your death benefit increases every year you have the policy. Insurers will fix your benefit increases at a certain percentage, usually 2%-10%. A higher percentage means higher annual rates, and you will also see your rates increase each year your death benefit goes up.

On the other hand, decreasing term life insurance comes with cheaper life insurance rates. You will not see your rates decrease over the course of the term. Instead, insurance companies offer cheaper annual rates upfront in exchange for decreasing death benefits.

Decreasing term life insurance is also called mortgage term life insurance or mortgage protection insurance (MPI). You can often buy it directly from your bank or lender instead of an insurance company. In this case, the term policy would cover a large debt — usually a mortgage. As your debt obligation shrinks, so does the amount of life insurance coverage.

However, if you own a business, wish to expand your family, or buy a larger home in the future, increasing term life insurance can help protect your investments. Just be sure to shop with companies that offer the right maximum limits for your needs. If your rates should increase beyond the limits of your death benefit, it will reduce the policy’s overall value. 

Renewable Term Life Insurance

Renewable term life insurance allows policyholders to extend coverage once the initial policy term ends. Most companies allow you to renew this kind of policy frequently and without taking another medical exam. 

Some renewable policies automatically renew every year up to a specific age (typically 65). Others will renew for your original term length once the first one ends. However, you will see annual rate increases after the renewal period. Your new rates will be based on your current age, and your rates will continue to go up with each renewal.

When deciding how to buy term life insurance, remember that renewable term life is more expensive than a level policy, but rates are still cheaper than increasing term life insurance quotes. Renewable policies are also much more common and easier to buy from major insurers. 

So, if you anticipate growing your family in the future but want to save money on life insurance, renewable policies can extend your coverage without reducing the value of your policy.

Convertible Term Life Insurance

With a convertible term policy, you can switch over to permanent life insurance at the end of your original policy’s term. You won’t have to take another medical exam, and your beneficiaries will receive the entire death benefit amount no matter when you die. 

Several types of permanent life insurance policies are available, including whole life, universal life, variable life, and modified whole life insurance. Each comes with unique investment options and features, including fixed or variable premiums, fixed or variable death benefits, and policy loan provisions.

However, some insurance companies place age limits on conversions, and most won’t let you convert after the age of 65. Companies may further limit conversions to a specific time range, sometimes within the first 10 years of your term policy. 

Converting from term to permanent life insurance will also increase your rates based on your age at the time of conversion. This table shows how rates for a permanent policy, like whole life insurance, vary compared to term insurance rates:

Term vs. Whole Life Insurance Monthly Rates by Age & Gender

Policyholder Age	Term Life - Males	Term Life - Females	Whole Life - Males	Whole Life - Females
25-Year-Old	$15	$13	$94	$85
35-Year-Old	$15	$14	$128	$113
45-Year-Old	$22	$20	$191	$243
55-Year-Old	$44	$34	$295	$422
65-Year-Old	$106	$73	$528	$204

Whole life insurance rates are more expensive by nearly $1,000 per year. Still, conversion policies are a good idea if you want a permanent policy but can’t afford one immediately. 

Return of Premium Insurance Rider

A return of premium policy is a type of level term life insurance that pays back your rates if you outlive the policy term. This means you can receive a lump-sum payment of all of your annual rates as soon as the term expires.

Return of premium life insurance is also called refundable life insurance and may be offered as an insurance rider instead of a specific policy. For example, insurers will add a clause to your term life insurance policy and adjust your monthly rates to cover the cost of paying back your money at the end of the term. 

Use this table to see the difference between return of premium and term life insurance rates:

Return of Premium vs Term Life Insurance Rates

Coverage	Return of Premium Life Insurance Average Monthly Rates	Term Life Insurance Average Monthly Rates
$100,000	$13/month	$10.45/month
$250,000	$20/month	$15.25/month
$500,000	$34/month	$23.48/month

The average monthly rates are not much more expensive. For $50-$100 more per year, you could get back all the money you invested in term life insurance coverage.

Living Benefits Insurance Rider

Living Benefits life insurance is most commonly offered as a life insurance rider, usually called accelerated death benefit rider. With this rider, the policy pays out some death benefits early to provide for long-term medical care and other health-related expenses. 

For example, if you are diagnosed with a critical or terminal illness, your life insurance policy can cover the costs of nursing homes, hospice care, live-in nurses, and more. Your annual rates will be higher, but you can receive up to 90% of your death benefits.

Term life insurance with living benefits does come with a few limitations. Often, insurers will require a life expectancy diagnosis from a doctor and limit accelerated death benefits to those with less than 12 months to live. Others will only pay out 25% of the death benefits for long-term care.

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How to Choose the Right Type of Term Life Insurance Policy

Life insurance will protect your family by paying for debts and funeral expenses should you die unexpectedly, but term life insurance will only cover you for a specific amount of time. You can use a term life insurance calculator online to give you more information.

If you outlive the term of your life insurance policy, your beneficiaries will not receive any death benefits. You will also lose money if you don’t buy a return of premium life insurance rider, which returns your annual rates to you once the policy term ends. 

The type of term life insurance policy you want depends on your age, debts, and whether you are your family’s sole provider. 

For example, if you’re leaving behind a large mortgage payment, your heirs will be responsible for the bill. But proceeds from term life insurance policies are typically tax-free, and your beneficiaries can use the death benefit to pay off the outstanding debts. 

If you anticipate leaving behind a large estate or family-owned business, you may want to consider renewable, convertible, or increasing term life insurance. Each policy type allows you to extend your death benefits at the end of the term, either by increasing the term length or converting the policy into permanent life insurance.

However, if you only need life insurance coverage for a short period of time, level or decreasing term life insurance is the most affordable option. These policies can provide coverage during the terms of your mortgage loan or other investments.

How to Get Term Life Insurance Quotes

When you know which type of term life insurance you need, you can start shopping for policy quotes online. You can visit insurance company websites or use free online comparison tools. 

If you’re interested in no medical exam term life insurance, you can get quotes and buy a policy very quickly. The average qualified applicant can typically select coverage amounts from $50,000 to $400,000 and coverage periods of 10, 15, or 20 years. However, rates can be more expensive with no medical exam policies. 

If you choose to take a medical exam before buying term life insurance, your quotes will vary based on your health and medical history. Nonsmokers will get the best life insurance rates. 

However, life insurance companies in your neighborhood may offer additional policy features or cheaper rates than some of the major insurers. Compare quotes from at least three different companies in your city to find the most affordable term life insurance near you. 

Case Studies: Exploring Term Life Insurance

Case Study 1: John’s Level Term Life Insurance

John, a 35-year-old married individual with two children, wanted to secure his family’s financial future in case of his untimely demise. After careful consideration, he opted for a level term life insurance policy. With this policy, John’s rates remained the same throughout the term, ensuring affordability and predictability for his family.

He chose a 20-year term to align with his children’s expected college graduation dates. In the event of John’s unexpected death during the term, his family would receive a death benefit to cover outstanding debts and provide financial stability.

Case Study 2: Sarah’s Convertible Term Life Insurance

Sarah, a 45-year-old business owner, wanted to ensure long-term coverage while maintaining flexibility. She decided to purchase a convertible term life insurance policy. This type of policy allowed Sarah to switch to a permanent life insurance policy at the end of the term without undergoing another medical exam.

As Sarah’s business grew and her financial needs changed, she could convert the policy to provide ongoing protection for her family and her business assets.

Case Study 3: Mark’s Decreasing Term Life Insurance

Mark, a 30-year-old homeowner, wanted to protect his family from the financial burden of his mortgage in case of his premature death. He opted for a decreasing term life insurance policy, also known as mortgage term life insurance. This type of policy offered lower initial premiums compared to other term life insurance options.

As Mark paid off his mortgage over time, the death benefit decreased, aligning with his decreasing financial obligations. The policy provided peace of mind for Mark and his family, knowing that the mortgage would be covered in case of his unexpected passing.

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