Term insurance provides coverage for a fixed period (the "term"). If the life insured dies during the term, the insurer pays the face amount. If the insured survives the term, coverage ends and no benefit is paid.
Key features:
- Premiums are level for the chosen term period (commonly 10, 20, or 30 years).
- At the end of the term, most policies are renewable (the insured can renew without new medical evidence, but at higher premiums reflecting their older age) and convertible (the insured can convert to a permanent policy without new medical evidence, up to a specified age or policy year).
- Term insurance has no cash value; premiums fund pure mortality cost and expenses.
- Because premiums cover only risk cost, not accumulation, term is generally the most affordable option per dollar of death benefit.
When term fits: income replacement during working years, mortgage protection, covering a specific debt or obligation with a defined end date, providing maximum coverage on a tight budget.
Common mistake: assuming that "renewable" means the premium stays the same. Renewal premiums are recalculated at the insured's attained age; they rise, sometimes sharply.
Know the difference between renewable and convertible options. Both can appear in the same policy; they protect different client interests.
Recall: What happens to a term policy at expiry if the insured does not renew? What right does "convertible" give the insured?