Understanding the Different Types of Term Life Insurance

This is the third in a series of MyFederalRetirement columns during September 2026 to help federal employees and retirees understand their need for life insurance and the choices they have with the different types of life insurance policies to meet those needs. The most recent column, Choosing the Right Life Insurance as a Federal Employee: Term, Whole, Universal, or Variable, presented the various types of individual life insurance policies available, including term, whole life, universal, and variable. This column presents the variations of term life insurance policies available to individuals.

Annual Renewable Term Life Insurance

Annual renewable term (ART) life insurance is a variation of short-term life insurance that allows a policyholder to renew their coverage annually without reapplying or undergoing a medical exam. ART life insurance offers a guarantee of future insurability for a set number of years. The design of an ART life insurance policy is to cover short-term life (10 to 20 years) insurance needs.

With an ART life insurance policy, the monthly or annual premiums automatically continue on a one-year contract basis. Within the stated term of an ART life insurance policy, the policyholder will be able to renew each year with guaranteed issue; in other words, the policyholder does not have to formally re-apply each year (and is not subject to medical underwriting in order to prove eligibility) for an additional year of life insurance coverage. Premiums will likely increase on the renewal of the insurance contract as the insured ages. At the death of the policyowner, the policy pays a set death benefit to a designated beneficiary or beneficiaries.

Level Term Life Insurance

An individual who applies for a level term insurance policy and is approved can expect to pay a set premium with a death benefit that will stay the same throughout the entire term of the policy. While term lengths can vary, the typical term life insurance policy lasts between 10 and 30 years.

Beneficiaries will receive the same death benefit or payout regardless of whether the insured dies during the fifth year of the policy or during the last year of the policy.

The advantages of level term life insurance include:

• Lower premiums. Compared to other types of term life policies, level term life insurance is on average associated with lower premiums. Someone who is young and healthy can potentially lock in up to 30 years of coverage with premiums that can likely fit their budget.
• Simplicity. Level term life insurance is easier to understand and maintain.
• Premiums and death benefits do not change. By owning a level term life insurance policy, the policyowner can budget for premiums because they stay the same throughout the term. The policyowner will also know exactly how much of a death benefit the beneficiaries will receive at the policyowner’s death.

The disadvantage associated with level term life insurance is that, like other term life insurance policies, once the term is over, there is no more life insurance coverage.

Increasing Term Life Insurance

Increasing term life insurance is a form of term life insurance in which the policyholder’s death benefit automatically increases by a specified amount annually without the policyholder being subject to medical underwriting. Premiums may be temporarily fixed, but in many cases the premiums will likely increase as the policyowner gets older and as the death benefit increases. The increasing death benefit feature is built into the policy rather than being attached as a life insurance rider.

The advantages of increasing term life insurance include:

• Inflation protection. An increasing term life insurance policy guards against inflation by helping to boost the policyowner’s death benefit each year. In this way, if the policyowner dies several years into the policy term, the beneficiaries’ death benefit payout may not be eroded over time due to inflation.
• The policyowner can get more life insurance coverage without going through medical underwriting. Applying for a new term life insurance policy involves new underwriting, meaning an individual has to apply again and usually undergo another medical exam. Increasing term life insurance can help an individual avoid this by automatically increasing the death benefit each year from the initial coverage amount.

The disadvantages of increasing term life insurance include:

• Premiums are most probably higher than level term insurance policy premiums. Many increasing term life insurance policies raise premiums yearly. Eventually this is likely to result in an increasing term life insurance policy costing more than a level term life insurance policy.
• Maximum death benefit limits. Insurance companies tend to set a ceiling on the amount of the policy death benefit. When the death benefit stops increasing, this may reduce the policyowner’s needed level of coverage for the remainder of the policy.

Decreasing Term Life Insurance

Decreasing term life insurance is a term life policy with a death benefit that decreases over time. Decreasing term life insurance can be beneficial to individuals who expect loved ones to gradually need less financial support as time passes. Since a decreasing term policy’s death benefit payout decreases over time, decreasing term life insurance is typically more affordable than other types of term life insurance policies.

Like other term life insurance policies, a decreasing term life insurance policy provides coverage for a defined period, usually between 10 and 30 years. When purchasing a decreasing term life insurance policy, an individual will select the number of years it will be active (usually 10 to 30 years) and the starting death benefit payout. After the insurance policy takes effect, the death benefit payout that the beneficiaries can receive will decrease a certain percentage each month or year, depending on the policy.

When the policyowner dies during the decreasing term policy term, the beneficiary can file a claim for the death benefit amount available at the time of the policyowner’s passing. If the policyowner is alive at the end of the policy’s term, the death benefit will have decreased to zero, and life insurance coverage will terminate at that time.

The advantages of a decreasing term life insurance policy include:

• Decreasing term life insurance is typically affordable. It is typically more affordable than standard term life insurance policies because the death benefit payout gets smaller over time.
• Decreasing term life can provide security for decreasing expenses. Decreasing term life insurance is beneficial for an individual who has large debts that will decrease over time, such as a mortgage. It can offer timely security in case the individual passes away and the debt balance is passed onto someone else, and it can be a more affordable way to offer protection for children and family members who will depend on an individual’s income less and less as time passes.

The disadvantages of decreasing term life insurance include:

• Availability. Decreasing term life insurance is not sold by all life insurance companies.
• Unexpected expenses. If the decreasing term life insurance policyowner incurs unexpected expenses toward the end of the policy’s term, the death benefit may be too small to fully cover them.

Return of Premium Term Life Insurance

Most life insurance policies end when their term is up, and the life insurance coverage ends with no payout to policy beneficiaries. A return of premium life insurance policy is different because it allows the policyowner to get back 100 percent of the premiums paid if the policyowner outlives the policy term.

The advantages of a return of premium term life insurance policy are apparent in several ways. For example, there is no risk of losing money. Although the money used to pay the premiums already belongs to the policyowner, it is good to know that the policyowner has an amount of savings reserved for the future.

The following are some disadvantages associated with return of premium term life insurance:

• Premium cost. Return of premium life insurance tends to be more expensive than standard term life insurance.
• Failure to make premium payments. If the policyowner fails to make premium payments, or cancels the policy before the term ends, the policyowner may not get a premium refund. Exact rules vary by insurance company, so it is important for a potential policyowner to review the policy’s fine print before signing the application.
• There could be more strategic ways to use one’s money. For example, when an individual puts money into a return of premium life insurance policy, that individual potentially loses any investment income that could have been earned by investing the money elsewhere.

The information presented above with respect to the different types of term life insurance policies is not intended to be a substitute for specific life insurance advice, as individual situations will vary. Because individual life insurance needs and situations vary, federal employees and retirees should discuss any individual life insurance needs with a qualified and licensed life insurance professional.