Term insurance is designed to provide life insurance protection for a limited period of time. The term could be as short as one year or as long as twenty years, but the policy is only payable if the insured person dies during the time specified in the policy. Term policies are generally defined by the way in which the face amount, or face value (the amount of money stated on the first page) of the policy changes throughout the policy's life. This is the amount that will be paid in the event of the insured's death. Let's look at some of the more common types of term policies and their characteristics.

Level term insurance provides a level (or, unchanging) death benefit and premium throughout the policy term. For example, if an individual purchases a five-year term policy with a face amount of $75,000, both the premium and face amount will remain constant for the entire life of the policy. Level policies are often also renewable and/or convertible (more on these later).

Decreasing term insurance differs from level term in that the face amount decreases during the life of the policy down to zero at the date of policy expiration. The annual premium, however, remains level throughout the term of the policy. One common use for decreasing term insurance is for the protection of a home mortgage. The policy coverage amount decreases each year at the same rate as the balance of the mortgage.

Increasing term insurance, though not as common as level- or decreasing policies, is basically just the opposite of decreasing term: the death benefit increases over the life of the policy, while the premium remains the same.

With an indeterminate premium term policy, the premium may fluctuate between the current charge and a maximum amount that's stated in the insurer's premium tables, which are based on the insurer's mortality experience, expenses, and investment returns.

A renewable term policy is one that can be renewed at the end of the policy's term for another period without evidence of insurability (which is a medical examination attesting to the insured's good health). For example, a one-year renewable term policy expires after one year but is renewable for additional one-year periods. A five-year renewable term policy can be renewed for subsequent five-year periods. A new application is not required nor is a new policy issued. Renewability may, however, be limited to a certain number of times or a specified age.

The renewable feature must be included in the original policy at its time of purchase. Once in place, the feature guarantees that the policy-owner will be able to purchase another policy identical to present one when it expires. However, upon renewal, the rates will be based on the age that the insured has reached at the time of renewal. This is the reason that premiums for renewable term coverage are often called 'step-rate' premiums; because at each subsequent renewal the premium is likely to be higher.

A convertible term policy allows the policy-owner to convert or exchange the temporary protection for permanent protection without evidence of insurability. This feature is usually used to convert term insurance to some form of whole life insurance. If the conversion option is exercised, the premium paid for the new policy will be based on the insured's attained age; in other words, the insured's age at the time of conversion.

Some life insurance companies place a time limit on the conversion privilege. This limit is usually based on the expiration date of the original term policy. For instance, some companies state that the policy must be converted as much as five years prior to the expiration date of the original policy, after which the right to convert is forfeited.

A re-entry option (also known as a reissue) gives the insured the opportunity to provide evidence of insurability at the end of the policy's term in order to renew it at a lower premium rate than the guaranteed rate normally available without evidence of insurability.

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