There are several types of individual term life insurance:
Annually Renewable Term (ART)—This is the most common form of term insurance and can be renewed at the end of the term (one year) without evidence of insurability. Rates increase at each renewal as the age of the insured increases. You pay a premium for the "term," which is one year. These policies are generally convertible and renewable to age 70. Once you are insured, the company must pay a death benefit as long as you pay the premium.
Level Term—With this type of term policy, the premium stays level for a specified period. The annual premiums may be initially higher than an annually renewable term policy, but may be lower over the period of time you intend to hold it. Be careful, though: while the premiums during the initial period are generally low, they can jump substantially once the term expires.
IMPORTANT NOTE: If the policy is not convertible and you are in poor health or uninsurable at the end of the 5-, 10-, or 20-year level term period, and you still need insurance, your term insurance premiums may be prohibitively expensive once the level term period expires, and you may not even find a company that will insure you.
Re-entry Term—This type of policy allows you to renew at a "preferred rate," which may be lower than a standard level term policy. To qualify for the policy at the preferred rate, you usually have to fall within the underwriting limitations for height and weight, health, and smoking status; sometimes there are even financial requirements.
IMPORTANT NOTE: While the premium is scheduled to remain level, the insurance company may only guarantee the rate for the first five or ten years, depending on the policy.
Here's the catch: At the end of the level term period, you are required to provide evidence of insurability in order to "re-enter" the policy at the "preferred rate."
IMPORTANT NOTE: While the "re-entry or preferred" rate is very attractive, you will find yourself paying substantially higher rates if you can't re-qualify at the end of the level term period. If you don't like to gamble, make sure the length of the initial level term period equals the amount of time that you intend to keep the insurance.
Decreasing Term—In this type of policy, the face amount of insurance decreases while the premium remains level. Decreasing term policies are most commonly sold as a form of mortgage insurance, whereby your insurance coverage decreases over the life of the mortgage.
IMPORTANT NOTE: Because the insurance decreases while the premium remains level, this type of term insurance tends to be more costly the longer the policy stays in-force. It is generally not recommended.
Narrowing the Playing Field When Searching for Term Insurance
There are several factors to keep in mind as you shop around for the right term life insurance policy:
IMPORTANT NOTE: Converting your group term insurance to a cash-value policy may not be your best bet. If you're a non-smoker in good health, have your life insurance company, or any life insurance company, issue you a new cash-value policy and underwrite you by fulfilling the medical requirements. You'll usually be eligible for lower rates.
IMPORTANT NOTE: When comparing policies, make sure there are no riders attached to the policy. You want to compare apples to apples, and riders can be priced differently.
SUGGESTION: Try to buy one term insurance policy to cover all your life insurance needs and keep your costs down.