As the name implies, Term Life Insurance provides protection for a specific period of time or term and generally pays a benefit only if you die during the “term”.   Term periods generally have durations of 1 year, 10 years, 15 years, 20 years, and 30 years.  However, some companies are now offering “off-term” policies which can be term periods of 11 years, 12 years, 13 years, and so on.

One of the biggest advantages of term insurance is its lower initial cost in comparison to permanent insurance.  Term insurance is often a good choice for people just starting out with family or just bought a house especially if they’re on a tight budget because it allows them to buy greater amounts of coverage when the need for protection is often greatest.

Term insurance is also a good option for covering needs that will disappear over time.  For instance, if paying for college is a major financial concern but you’re pretty sure that you won’t need life insurance coverage after the kids graduate, then it might make sense to buy a term policy to provide coverage through the college years.  At the end of the term, your coverage ends or terminates.

If you still need coverage beyond the initial term you still have some options.  But it’s kind of a good news – bad news situation.  The good news part is that many policies will allow you to covert the term policy into a permanent life policy prior to the expiration and before you reach a specific age with or without proving insurability.  The bad news is the insurer may also allow you to just renew the existing policy, paying premiums based on your current age at the time of renewal or to simply let the policy become an annual renewable term policy where the premiums are just too expensive.

So, if you’re considering a term policy, make sure you carefully consider how long you’ll need the coverage.  If you’re confident that your needs are temporary, then term insurance is probably the right choice for you.  But if you think there’s a possibility that you might need the coverage for a long time, then remember that if you want to renew your term policy after it expires or buy a new term policy at that time – your age, health status, or other factors may make coverage very expensive.

One exception to this rule is what’s called a Return-Of-Premium (ROP) term policy.  They are generally available in 10 year, 15 year, 20 year, 25 year, and 30 year terms.  With a ROP policy, if you keep the policy in force for the entire term, say 20 years, the insurance company will offer you the option of either refunding all the premium payments you made over that 20-year period or giving you a reduced paid up policy.  Of course, there is a price to be paid for this added benefit.  The premiums for return-of-premium policies are considerably higher than premiums for standard term policies.

The price difference can be 20%, 30%, or more.  But if you own a return-of-premium policy, dropping the policy before the full term has expired means that you will have paid a high price for your term insurance coverage and the premiums you paid won’t be fully refunded.  At best, you’ll get a partial refund of the money you put into your policy to that point.