Since 2004, September has been designated as “life insurance awareness month” by the nonprofit organization Life Happens (https://lifehappens.org). Life Happens is dedicated to helping consumers take personal financial responsibility through the ownership of life insurance and related products. This is the second of a series of FEDZONE columns during September 2025 to help federal employees understand their need for life insurance and the choices they have in the different types of life insurance policies to meet those needs. This column discusses the different types of individual term life insurance policies.
Annual Renewable Term Life Insurance
Annual renewable term (ART) life insurance is a type 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) life insurance needs.
In 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 go through another medical exam to prove eligibility for the additional year of life insurance coverage. Premiums will likely increase on the renewal of the insurance contract as the insured ages. The policy pays a death benefit which remains the same to a designated beneficiary(s) with the life insurance policy’s extension.
Level Term Life Insurance
An individual who applies for a level term insurance policy and is approved can expect to pay a set premium and 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 in the fifth year of the policy or 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 comes on average with lower premiums. Someone who is young and healthy can potentially lock in up to 30 years of coverage with premiums the most will 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 policy owner can budget for his or her premiums because the premiums 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 life term insurance is that 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 that automatically increases the policyholder’s death benefit by a specified amount annually without new underwriting. Premiums may be fixed but in many cases the premiums increase with the death benefit. 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 boast the policyowner’s death benefit each year. In this way, if the policyowner dies several years into the policy term, the policyowner’s beneficiaries’ death benefit payout may not be eroded over time due to through 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. This means an individual has to apply again and usually undergo another medical exam. But increasing term life insurance can help an individual avoid this by automatically increasing a term life insurance policyowner’s death benefit each year to the initial coverage.
The disadvantages of increasing term life insurance include:
- Premiums most probably are higher than level term life insurance policies. 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 how much the death benefit can increase. When the death stops increasing, this may reduce the policyowner’s needed level of coverage for the remainder of the policy.
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Decreasing Term Life Insurance
Decreasing term life insurance is a term life policy with a death benefit that gets smaller over time. This type of term life insurance is 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 policy provides coverage is for a defined period, usually between five and 30 years. When purchasing 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 policyowner’s 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 to decrease to zero, and the coverage will terminate at that time.
The advantages of a decreasing term life insurance policy include:
- Decreasing term life insurance is typically affordable. Decreasing term life insurance is typically more affordable than standard term life insurance policies. This is because the death benefit payout gets smaller over time.
- Decreasing term life can provide confidence 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. Decreasing term life insurance can offer timely confidence in case the individual passes away and the debt balance is passed onto someone else. It can also 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 available through all insurance companies.
- Unexpected expenses. If the decreasing term life insurance policyowner incurs unexpected expenses toward the end of the policy’s term, then the death benefit may be too small to fully cover the unexpected expenses.
Return of Premium Term Life Insurance
Most life insurance policies end when their term is up, and the coverage ends with no payout to policy beneficiaries’ 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.
The advantages of a return of premium term life insurance policy are obvious. In particular, 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 a nice 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 if the policyowner cancels the policy before the term ends, then the policyowner may not get a premium refund. Exact rules vary by insurance companies. It is therefore important for a potential policyowner to get the facts before signing the application.
- There could be more strategic ways to use one’s money. For example, when an individual puts money in a return of premium life insurance policy, the individual potentially loses gains the individual can make by investing the money.
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, it is suggested that federal employees and retirees should discuss any individual life insurance needs with a qualified and licensed life insurance professional.
These policies have exclusions and/or limitations. The cost and availability of life insurance depend on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company. Raymond James is not affiliated with and does not endorse the opinions or services of Life Happens.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
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Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert
A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.
He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.