Which Term Life is Best for You:
Annual Renewable, Decreasing, or Level?

Is it true that Term Life is the simplest form of life insurance?

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Yes and no. Term life insures you for a time period, giving you a cheap premium for a high face value. At the end of the time period, you can renew it for a much higher price or for a different type of insurance. However, term life can have riders and various options which might require explanation if you are not an insurance professional.

Are there different types of Term Life?

Yes. The most common is "level term" which means you have a face value and premium which remain constant for the period of the term. You can, however, purchase annual renewable term or decreasing term.

What is "annual renewable" term?

Annually renewable term covers you for one year. The premium increases each year and these increases get steeper as you get older.

When would a person purchase "annual renewable" term?

In most cases, you wouldn't want annually renewable. There are, however, a couple of exceptions. If you have a business start-up loan that will be paid off in a year or two, you might want insurance to pay that bill in the event of something happening to you. Also, if you develop a serious illness and cannot get any other insurance when the term expires, you will have to hang onto the term even at the increasing price. Although it sounds rather harsh, a person with a very limited life expectancy would probably not care about the steep increases in later years. The renewal price for the first few years is usually fairly reasonable, even though it will be triple (or more) the original price.

What is "decreasing" term? Is this a better option than "annual renewable" term?

If you are unable to purchase any other type of insurance—such as whole life or universal—and your term is expiring, a decreasing term may be more financially feasible than annually renewable. In decreasing term, the face value drops annually while your premium remains the same. Because decreasing term is even less expensive than level term, your face value may actually increase in the first couple of years. However, if you live another 15 or 20 years, the policy will eventually become worthless.

When is "level term" a better option than "decreasing" or "annual renewable" term?

Level term may be the best option for you while you are young. Even though it builds no cash value, it provides a high face value that would go a long way in taking care of your family. However, to make sure you have favorable options later in life, you should check out the other policies the company offers. Of course, they can change over time, but a company that offers whole life today is usually going to have some form of whole life or universal in the future. You should be aware that many companies that work hard to convince you to take a term policy don't offer anything but term. If you have health problems later in life, you will find yourself forced to renew at the higher price, and your insurance will usually not be renewable at all once you reach age 85.

How much life insurance should I buy?

Use our Calculator to help estimate the right policy to fit your price and needs.