Term life insurance types

Term life insurance buys a death benefit for a stated period — the term. If the insured dies while the policy is in force, the company pays the face amount. If the insured is still living when the term ends, the policy simply expires. Because it is pure protection with no savings element, term insurance normally costs less per dollar of coverage at younger ages than permanent insurance, and it normally builds no cash value (Tex. Dep't of Ins. Consumer Pub. CB018, Life Insurance Guide).

When you classify a term product, ask three questions:

What does the death benefit do over the term — stay flat, shrink, or grow?
How long is the premium guaranteed, and what happens at each renewal?
Can the owner renew or convert at the end of the term without proving insurability again?

A line graph titled Term life: death benefit patterns over the term. The vertical axis is labeled death benefit and the horizontal axis is labeled policy years, from the start of the term to the end of the term. Three lines cross the chart. A flat horizontal blue line labeled level term stays at the same height from start to finish, showing a face amount that does not change. A red line labeled decreasing term starts high on the left and slopes steadily downward to the right, showing a face amount that shrinks on a schedule, like a mortgage balance. A green line labeled increasing term starts low on the left and rises steadily to the right, showing a face amount that grows over time. A dashed vertical line at the far right is labeled end of term. A note near the bottom of the plot says no cash value accumulates under term coverage. A box below the graph lists what the owner may do at the end of the term: renew with no new proof of insurability at a premium based on attained age, convert to permanent insurance, or let the coverage end with no benefit paid. — Level, decreasing, and increasing term compared, with the renew, convert, or expire choice at the end of the term.

Level term

The face amount stays the same for the whole term — 10, 15, 20, or 30 years are typical — and the premium is normally level for that period as well. This is the workhorse for income replacement and for any obligation that does not shrink.

Decreasing term

The face amount declines on a schedule set in the policy while the premium usually stays level. It is designed to track a shrinking need, such as a mortgage balance or an installment loan. Credit life insurance sold in connection with a loan is a familiar decreasing-term pattern.

Increasing term

The face amount rises over the term according to a schedule or an index. It is often used to keep pace with inflation or a growing obligation, and it frequently appears as a rider or benefit attached to another policy rather than as a stand-alone contract.

Annual renewable term

Each policy year is a one-year term that the owner may renew for another year without new evidence of insurability. The trade-off is price: because the insured is a year older at each renewal, the premium steps up every year.

Renewable and convertible features

Renewable — at the end of the term the owner may continue coverage without proving good health, but the new premium is based on the insured's attained age.
Convertible — the owner may exchange the term policy for a permanent policy without evidence of insurability, within limits stated in the contract.

Term insurance is temporary by design. If the owner neither renews nor converts, coverage ends when the term ends and no benefit is paid — a key point to disclose in every term sale (CB018).

Cash value and nonforfeiture

Because term premiums are priced for protection during a limited period, term policies generally have nothing to surrender. Texas's Standard Nonforfeiture Law for Life Insurance governs when a policy must provide cash surrender values, paid-up values, and similar nonforfeiture benefits, and it treats limited-duration term coverage differently from permanent plans that accumulate value (Tex. Ins. Code ch. 1105). Practically, that is why a lapsed term policy usually returns nothing while a lapsed whole life policy may not.

Rules that apply no matter the term type

Term policies are still life insurance contracts issued under Texas law: the statutory definitions of the life insurance business and the required policy provisions apply to term and permanent coverage alike (Tex. Ins. Code ch. 1101; Tex. Ins. Code Title 7). A producer should read the policy's own renewal, conversion, and expiry language, because the specific ages, periods, and schedules are set by contract.