Term Life Insurance Definition
Term Life insurance has been with us for a long time. It is the
least expensive of all the life insurance policies. Term life
insurance is life insurance that provides protection for the
named insured over a stated period of time. That is what
differentiates it from other forms of life insurance. Term
insurance has no equity or cash value accumulation and so it is
primarily purchased for the security provided by the death
benefit. There are three basic forms of term life insurance.
1. Decreasing Term - This policy is most commonly associated
with mortgage protection insurance. The face amount decreases
over a stated period of time. A thirty year mortgage for a
homeowner is appropriately insured by a thirty year decreasing
term policy for the same mortgage amount. The mortgage balance
and the term policy decrease at about the same rate and so the
homeowner can be assured that his home will be paid for whether
he or she lives or dies.
2. Level Term - Level term insurance also provides protection
for a specific time period. The face amount remains level
throughout the stated period. This policy is often purchased for
short term debt or intermediate term debt. You can purchase 5,
10, 15 and 20 year term policies from most insurance companies.
3. Annual Renewable - This form of term insurance is the least
recognized of all term policies. It provides a level amount of
insurance but the premium increases each year at the policy
renewal date. The premiums can be very low at first but can
escalate into very high premiums as the insured gets older.
All of these term life insurance policies have there advantages
but the common denominators that give term life insurance its
definition remains the same. The policy is always for a stated
period of time and there is no equity or cash value
accumulations. Those two features define term life insurance.