Quick Answer
Term life pays a death benefit when a covered death occurs while the policy is in force during its stated period. It usually has no cash value. Match the benefit pattern and coverage period to the temporary need, then check renewal, conversion, pricing, and refund conditions in the contract.
Use this sheet to connect each term design and contract option to the problem it solves.
What Does Ordinary Term Insurance Provide?
- Term life provides death protection for a stated period and ordinary term generally has no cash value.
- Coverage generally ends at expiration unless the owner uses an eligible renewal or conversion right.
- It can fit temporary income replacement or a loan. Compare the whole protection period and future cost, not only the first premium.
How Do the Main Term Designs Differ?
| Design | Death-benefit pattern | Premium or refund feature |
|---|---|---|
| Level | Stays level during the selected period. | Generally level during the selected level-premium period; renewal can cost more. |
| Decreasing | Declines and can match a falling obligation. | Can remain level while the benefit falls. |
| Annually renewable | Remains level through successive one-year periods. | Generally rises at renewal based on attained age. |
| Return of premium | Adds a conditional refund. | May return specified premiums after survival and other conditions; typically costs more. |
- Some return-of-premium designs build cash value and allow loans. Check the actual contract. A level premium does not mean a level death benefit.
How Do Renewal and Conversion Differ?
- Renewability: Continues eligible term coverage without new evidence of insurability. The required premium can rise.
- Conversion: Changes eligible term coverage to an eligible permanent policy without new medical underwriting within its window. It can preserve access after a health change, but permanent coverage may cost more.
- Renewal limits, conversion deadlines, products, and amounts come from the contract. A policy can remain renewable after conversion closes.
- Attained-age pricing uses age at conversion. Original-age pricing uses the earlier issue age when offered and can require a stated past-premium payment. Neither promises the old term premium.
How Do You Match the Policy to the Need?
- Compare the need with the level period, expiration, renewal age, conversion deadline, and future premium. Ten years of nonrenewable coverage leaves five years of a 15-year need uncovered.
- For decreasing term, check whether the benefit falls with the obligation.
- For return of premium, identify eligible premiums, required duration, survival condition, and early-cancellation schedule.
- Missing a conversion deadline does not create a backdating right.
Which Gotchas Trip Students Up?
- Renewable does not promise the original premium or unlimited renewals.
- Convertible does not give ordinary term a cash value.
- Decreasing term can have a level premium and falling benefit.
- Early cancellation does not automatically produce a full return-of-premium refund.
One-Breath Recap
Term life pays a death benefit for a covered death during a stated period and usually has no cash value. Level term keeps the benefit level, decreasing term lowers it, annually renewable term usually raises premiums with attained age, and return-of-premium term adds a conditional refund at a higher cost. Renewal continues eligible term coverage without new evidence of insurability; conversion changes eligible coverage to a permanent policy within its window. Match the benefit pattern, coverage period, future premiums, deadlines, and refund conditions to the actual need.
Need more than the recap? Read the full Term Life unit.