Types of Term Life Policies

Not all term life insurance is the same. Depending on your financial goals, you might need a policy that stays steady, shrinks with your debt, or offers money back.

1. Level Term (The Gold Standard)

This is what 95 percent of people should buy. With Level Term, two things are guaranteed to never change for the life of the policy (10, 20, or 30 years):

• The Premium (monthly cost).
• The Death Benefit (payout amount).

This stability makes it perfect for income replacement and covering fixed debts like mortgages.

2. Decreasing Term (Mortgage Life)

With this policy, the death benefit goes down every year, usually matching the amortization schedule of a mortgage. However, the premium usually stays the same.

3. Annual Renewable Term (ART)

This policy covers you for exactly one year. It is extremely cheap when you are young (e.g., $10/month), but the price rises every single year as you age. By the time you are 50, it becomes prohibitively expensive. It is best used for short-term gaps, like between jobs.

4. Return of Premium (ROP)

This acts like a savings account with zero percent interest. If you buy a 20-year term and outlive it, the insurance company refunds 100 percent of the premiums you paid.

• The Catch: It costs 2x to 3x more than a standard Level Term policy.
• The Risk: If you cancel the policy early (e.g., at year 15), you usually get nothing back. You must hold it to the very end.