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What is Term Life Insurance?

Term Life Insurance is the traditional, that is, original form of life insurance offered.  In a term policy the holder of the policy agrees to pay a fixed premium, over a fixed term and receive a fixed payout if the policy is triggered, that is to say, if they die.

Term life insurance is typically quite inexpensive (compared to whole or permanent life insurance - see Whole Life Insurance) because the likelihood that the contract will be paid (ie that the holder will die) is relatively low. This is particularly true for anyone under 40.  As the age of the purchaser of the term life insurance increases, so does the premium.  Above the age of 50 premiums typically rise quite rapidly.

There are 2 typical forms of term life insurance, annual renewable and level – though they are really the same thing, simply with different term lengths.

Annual Renewable is simply a term policy with a term of 1 year.  In this case the policy is adjusted each year based on standard actuarial methods / mortality rates.

Level Term Life Insurance uses the same methods to derive the premium payment per benefit amount, however the term of the contract (or policy), ie the length of the term, will significantly influence the premium. Especially if the term carries into old age – 60-70+.