Term life insurance was the original life insurance.

Says Investopedia, it is “a policy with a set duration limit on the coverage period. Once the policy is expired, it is up to the policy owner to decide whether to renew the term life insurance policy or to let the coverage end. This type of insurance policy contrasts with permanent life insurance, in which duration extends until the policy owner reaches 100 years of age (i.e. death). These types of policies provide a stated benefit upon the death of the policy owner, provided that the death occurs within a specific time period. However, the policy does not provide any returns beyond the stated benefit, unlike permanent life insurance policies, which have a savings component that can be used for wealth accumulation.”

If you talk to an insurance professional, especially one who is trying to sell you permanent life insurance such as whole life, he will describe term life to you in terms of renting or owning a house. Term life is like renting a house instead of owning it. Depending on your policy, your premiums (your rent) may rise over time, but your face value (your dwelling) will never increase (and it might decrease) and when you move out (when coverage ends) you have nothing to show for it except lost money (the premiums you paid get you nothing because you outlived or canceled the policy). On the other hand, with permanent life insurance (home ownership) you have to pay more and you have more maintenance concerns (premiums are higher), but you also build up equity (policy cash value) that you can use in your living years and you may very well live in that house (keep the policy) until you die. And most people who can afford it would rather own a home instead of just rent a place.

However, proponents of term life, and they include many non-insurance agents who are financial advisors and writers as well as insurance brokers, will point out that life insurance is really not supposed to be a permanent fixture of someone’s financial life except in highly specialized cases (estate planning for instance). Life insurance, they will tell you, is supposed to be like a temporary bridge between one’s earlier wealth-accumulation phase and one’s high net worth phase, when one has enough net worth that if one died tomorrow one’s family and final expense would be taken care of out of one’s estate. They call the later phase being “self-insured”.

Proponents of term life say that the best way to go financially is to buy term life insurance and also have a disciplined investment plan to bring in wealth accumulation that is far greater than what a permanent life insurance policy, with its much higher premiums, can bring.

As people are growing generally more sophisticated about financial matters thanks to the Internet and the efforts of financial institutions (many of which now sell life insurance, too), term life insurance, once heavily disparaged, is coming back into vogue, and “buy term and invest the difference” has a great appeal to people, especially young people who are not afraid of the stock market and who don’t like the idea of paying higher insurance premiums than they have to.

Term life policies exist that last for differing lengths of time (one year, five years, 20 years, etc), after which they must be renewed or the person loses coverage. There are also some special term life plans such as decreasing term life, which is usually used to cover a mortgage and has a length pegged to the length of the mortgage note.