While the life insurance debate is often framed as being term life or whole life, there are many other types of life insurance available. Many of them are variations of whole life or term life, but there are enough differences that they can stand on their own. The key point to remember is term life insurance and all of its variations are insurance policies for a specified time period. Whole life and universal life insurance, along with their variations, are intended to be permanent life insurance.
Types
Term life insurance comes in several forms, with level term the most common. With level term life insurance, you pay the same premium and your benefit remains the same for the duration of the policy. Renewable term life insurance is another common type of policy, in which the policyholder has the option of renewing his policy for an additional term when the present policy expires. Each renewal will cost more as the policyholder is older. Permanent life insurance policies such as whole life and universal life have a constant death benefit that will be paid if the policyholder dies while covered, but some plans such as variable life or variable-universal life can have a fluctuating death benefit, although a minimum death benefit will be stated in the policy. Another type of permanent insurance will guarantee coverage until the policyholder turns 100, at which point they are paid the full face amount of the policy. These types of policies will typically contain a level premium rate and a level death benefit.
Benefits
Another aspect that separates term life insurance from the other types of life insurance is that a term life insurance policy will never establish a cash value. The closest one could come to a term life policy having any cash value would be a return of premium term life policy in which the premiums paid by the policyholder are returned to them when the policy expires. The catch is these policies are generally for a long duration, typically 15 to 30 years, and they cost more than a normal term policy. Permanent life insurance policies will establish a cash value because when premiums are paid, a portion of the money received is put into a separate account and used for investment purposes. When enough money has been placed in the separate account it is said to have a cash value.
Time Frame
Term life insurance policies can vary greatly on length. Terms can be for as little as one year, with an annually renewable policy, or for as many as 30 years with a level term or return of premium term life policy.
Significance
Another aspect that makes term life policies attractive for many people is that they will be less expensive than the permanent life insurance policies. This is particularly notable with younger people, who are not considered as much of a risk to insure as an older individual. Term life will begin to lose a bit of its financial attractiveness as the policy holder ages, which will lead to increased premiums.
Theories/Speculation
Even though you always have the option to change from permanent life insurance to term life, doing so could prove to be costly. With permanent life insurance, your premiums are based on averaging the cost of coverage for your lifetime, therefore the payments you make during your first few years of coverage will be for more than it actually costs to insure you. Dropping a permanent life plan early on will result in you paying artificially high rates during that time. Therefore, it's always best to speak with an insurance specialist and determine which type of policy is best for you.
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