Term insurance provides insurance protection for only a limited period of time. However, there are different types of term insurance: annual renewable term; level term; decreasing term; and modified term.
Annual Renewable
An annual renewable term contract provides fixed coverage for the present year and guarantees the right to renew for the following year at a specified rate. Please note that it is usually inappropriate for a life insurance trust to own annual renewable term insurance.
Level Term
With level-term insurance, the policy is written for a fixed period of years and total premiums for the entire period of coverage are divided into equal installments. Some popular feature offered as an option with level-term insurance is allowing you to convert your insurance to a whole life policy, and/or offering renewable term.
Decreasing Term
In decreasing term insurance, premiums remain constant over the period of coverage, but the death benefit amount decreases annually. These policies are usually used to ensure payment for declining assets such as a mortgage balance or to provide a fixed income for a duration of time.
Modified Term Modified term insurance is initially just term insurance for roughly 10 years and then automatically converts to whole life or permanent insurance.
