The words used to describe different types of life insurance can be confusing to the average person. Not fully understanding the terms used can result in consumers making poor choices and selecting the wrong kind of coverage for their family. In this article we will define what term life insurance is.

Term life insurance is called term because it covers an insured person for a fixed period of time. Term life insurance is available for periods of time ranging from one year up to thirty years. Term insurance is strictly a life insurance policy; there are no additional benefits or add-ons. Compare this with whole life insurance which includes both an insurance policy as well as an investment component. Term life insurance is much cheaper than a whole life policy because it does not have the extra benefits – and costs – of a whole life policy.

When it comes to the premiums for term life insurance there are two types: annually renewable and level term. Annually renewable premiums increase as you get older. Level term premiums are fixed throughout the life of the policy.

Generally speaking, level term life insurance policies have more expensive premiums than annually renewable policies when you purchase the policy at a relatively young age. As you get older, the annually renewable premiums become more expensive than the level term policies.

When the term of the insurance is over, that’s it. If you haven’t died, lucky you, but you get no money from the insurance company. In a whole life policy, as mentioned earlier, there is an investment component which means that part of the money you have been paying in premiums has gone into stocks, bonds or a money market fund. But don’t be too jealous. The rate of return on whole life policies is generally not great, and the fees and commissions that are baked into your premium can substantially reduce any return you might get.

For most people, level term life insurance is the best kind of policy to get. The costs are fixed over the life of the policy and if you are in good health, the costs can be quite reasonable.