Term life insurance
Also known as: temporary life insurance, pure life insurance
Term life insurance provides a death benefit for a specific period — such as 10, 20, or 30 years — and pays only if the insured dies during that term. It builds no cash value, which makes it the most affordable form of life insurance.
Term life insurance is pure death protection for a defined period. The policyowner pays premiums for a stated term — commonly 10, 20, or 30 years, or to a specified age — and if the insured dies while the policy is in force, the beneficiary receives the death benefit. If the insured outlives the term, coverage simply ends with nothing paid out.
Because term insurance has no cash value or savings component, its premiums are far lower than permanent insurance like whole life for the same death benefit. That efficiency makes it the standard recommendation for covering temporary needs: income replacement while children are dependent, a mortgage balance, or business obligations like key person coverage.
Term policies come in several structures. Level term keeps the death benefit constant; decreasing term shrinks it over time (often tracking a mortgage); and annually renewable term resets each year at a higher premium as the insured ages. Two common options add flexibility: a renewability provision lets the owner continue coverage after the term without new evidence of insurability (at a higher premium), and a conversion provision lets the owner exchange the term policy for permanent coverage without a new medical exam.
Life insurance licensing exams test term insurance heavily — its types, riders, and contrast with whole life's guaranteed cash value. The Series 65 exam also touches life insurance basics in its insurance products section, where the key distinction is that term maximizes death benefit per premium dollar while permanent insurance adds a savings element.
Key takeaways
- Term life insurance pays a death benefit only if the insured dies during the policy term; outliving the term ends coverage.
- It builds no cash value, so premiums are much lower than whole life for the same death benefit.
- Common forms include level term, decreasing term, and annually renewable term, often with renewability and conversion provisions.
- Licensing exams contrast term's pure protection with whole life's permanent coverage and guaranteed cash value.