The simplest and most inexpensive form of life insurance is a term policy. Term life is a temporary policy that covers a specified number of years and will pay out in the event of death within that time frame. This time period could be as brief as one year or provide coverage for a specific amount of time, such as 10 to 20 years, or to a specified age. If you die during the term period, the company will pay the face value to your beneficiary. If you live beyond the term period you had chosen, no benefit is payable, but after the period is up, you have the option of continuing the policy by paying annually increasing premiums. Term policies generally have two types of initial premiums-- guaranteed maximum premiums and current premiums. Current premiums are usually much lower, but they can be changed by the insurance company. The insurance company, however, cannot increase the current premium above the guaranteed maximum premiums shown in the policy.

Term insurance operates in a manner similar to most other types of insurance in that it satisfies claims against what is insured if the premiums are timely paid and the contract has not expired. It does not result in a return of premium dollars if no claims are filed. Term life is thought of as pure insurance protection because it builds no cash value. This is in contrast to permanent life insurance, which does amass cash value. Some term insurance can be converted to cash value insurance up to a specified age without a physical examination. Premiums for the converted insurance will most likely be more costly than the premiums you would be paying for the term insurance. If you do not pay the premium for your term insurance, it will generally lapse without cash value, as compared to a permanent type of policy that has a cash value feature.