Term insurance

Because term life insurance simply provides life insurance, without a cash value reserve, the premiums are generally much lower when compared with a permanent policy with the same death benefit. You can buy the coverage for a single year, or for terms of five or ten years or longer.

Most term policies are renewable, which guarantees that you can extend your policy for additional terms without having to prove to the insurance company that you're still in good health. The renewal guarantee is often conditioned, though, on the fact that you've kept the policy in force by paying your premiums on time. The risk, if you don't renew, is that you won't be covered when you die and your beneficiaries will not receive a death benefit.

Renewable policies

With level term insurance, you pay the same premium each year during the term and the death benefit remains the same. If you want to renew for an additional term — say another five years — the annual premium will probably go up. That's because as you get older, the chance you'll die during the new term increases. So the issuing company offsets this increased risk by requiring you to pay more for the coverage during the new term.

With annually renewable term insurance, your premium increases each year though the death benefit remains the same. While you'll pay significantly less in the first few years than you would for a level term policy, in most cases your total cost will be higher — sometimes much higher. If you're considering both varieties, you'll want to ask for a copy of the increasing rate schedule. By adding the amounts, you'll have a basis for comparison with a level term policy that provides the same benefit.

Other term policies

If you're concerned about having enough insurance to take care of small children, pay off the mortgage or another responsibility with a fixed time frame, you may consider decreasing term insurance. This type of policy pays the largest death benefit in the first year the policy is in force and a smaller amount in each following year until the policy ends — perhaps after 20 years. The premium is level throughout the term.

Conversely, if you think you may some day want permanent insurance but find it more costly than you can afford at the moment, you may consider a convertible term policy. That gives you the option of switching to a permanent policy with the same death benefit at some point in the future without having to qualify by passing a health screening exam. To pay for the added flexibility, the annual premiums are more expensive than they would be for a plain vanilla term policy.

Term insurance is widely available from a number of insurance companies. You can comparison shop by asking a number of potential providers for their rates and do additional research online.