Level Term life insurance provides coverage for a
limited time, the " term". After that period, the
insured can cancel the policy or pay increasing
premiums to continue the coverage. If the insured dies
during the term, the death benefit will be paid to the
beneficiary. Term insurance is often the cheapest way to
purchase a sizable death benefit on a coverage amount
per premium dollar basis.
Much more common than annual renewable
term insurance is guaranteed level
premium term life insurance where the
premium is same for a given period
of years. The most common terms are 10,
15, 20, and 30 years.
In this form, the yearly premium is the same, and is based on the summed cost of each year's annual renewable term rates, with a time value of money adjustment made by the insurer. Thus, the longer the term the premium is level for, the higher the premium, because the older, more expensive to insure years are averaged into the premium.
