Term Life Insurance Explained: Level, Renewable and Convertible

How term life insurance works, the main kinds of term policies, what happens when the term ends, and the trade-offs to weigh before you buy one.

Life Insurance Knowledge · Last reviewed October 26, 2026 · 6 min read

Term life insurance is the simplest kind of life insurance. You buy coverage for a set number of years, and if the insured person dies during that time, the policy pays the death benefit to the beneficiaries. If the insured outlives the term, the coverage ends and nothing is paid.

That simplicity is why many people start here. The NAIC says term insurance "generally offers the largest insurance protection for your premium dollar," and the Texas Department of Insurance (TDI) calls it the simplest and least expensive option. But term policies come in several variations, and the details around renewal and conversion matter a lot later in life.

This guide is general information, not financial or insurance advice. Your state insurance department and a licensed professional can help you apply it to your own situation.

How a term policy works

TDI's life insurance guide (updated December 12, 2025) describes the term as one year, or anywhere from five to 30 years or longer, and you choose the length. If the insured dies during the term, the policy pays a lump sum to the beneficiaries. When the term ends, so does the policy, unless you pay to extend it.

New York's Department of Financial Services (DFS) adds two points that surprise some buyers. First, as a rule, term policies have no savings element or cash value. Second, if you stop paying premiums, a term policy generally lapses without any value, unlike a permanent policy that has built up cash value.

People often choose term when the need for coverage has a natural end date. TDI's examples include the years when you are raising a family or paying a mortgage, or a policy that lasts until your children are out of school.

Level and decreasing term

The two most common shapes, as New York DFS describes them:

Level term keeps the same face amount for the entire term.
Decreasing term keeps the premium the same while the face amount shrinks over the term. These policies are often sold as mortgage protection, with coverage falling as the mortgage balance falls.

A close cousin is credit life insurance, which pays the balance of a specific loan if the borrower dies. TDI points out that if you already have life insurance, you might not need credit life; you may be able to assign part of an existing policy's death benefit to the lender instead.

How term premiums behave

For a typical level-premium term policy, TDI explains that premiums stay the same for the entire term and go up if you renew, because the new premium is based on your age at renewal, not your age when you first bought the policy. That is why TDI suggests considering a longer term if you want to avoid higher premiums later.

New York DFS notes that term policies are sold with various premium guarantees, and the longer the guarantee, the higher the initial premium. DFS also describes adjustable premium term, where the insurer charges a lower current premium but keeps the right to raise it in the future, never above the maximum premium stated in the policy. The NAIC buyer's guide adds a broader caution: premiums for many policies are sensitive to the company's investment earnings, claims costs and other expenses, so ask what the highest premium you might have to pay would be.

Renewability: extending coverage when the term ends

Many term policies are renewable. The NAIC says most term coverage can be renewed at the end of the term even if your health has changed, but the new premiums are higher. Its guidance for buyers is to ask two things before you buy: what the premiums will be if you renew, and whether you lose the right to renew at a certain age.

A nonrenewable policy simply ends. To keep coverage, you would need to apply for a new policy, which means new underwriting at your current age and health.

Age limits matter here. TDI's guide (updated December 2025) says most companies offer term life only up to a certain age, usually 70 or 80; limits vary by insurer, so ask about the policy you are considering. The NAIC also notes that some companies, for a higher premium, will keep a policy in force for a set period at the same price each year, and that at the end of that period you may need to pass a physical to continue and premiums may rise.

Convertibility: switching to permanent coverage

A conversion option lets you exchange a term policy for a permanent one without proving you are still healthy. TDI describes it as exchanging your term policy for a permanent life policy without a medical exam or health questions, which can be valuable if your health declines after you buy.

There are limits. TDI's guide says converting will raise your premiums and that companies usually allow conversion only for a time, typically until you turn 65, though each policy sets its own conversion period. New York DFS explains that you must use the option during the conversion period, and the new premium is usually based on your age on the conversion date. The NAIC notes the same trade-off: you may be able to convert even if you are not in good health, but premiums for the new policy will be higher than what you were paying for term.

Before you buy, check the policy for the length of the conversion period, which permanent policies you can convert into, and whether you can convert only part of the coverage.

Weighing the trade-offs

Term's strengths are clear: lower premiums at the start and a simple promise. TDI's comparison table lists its disadvantages just as plainly: premiums go up each time you renew, and the policy doesn't build savings.

You will probably hear the slogan "buy term and invest the difference." The NAIC treats it as a sales pitch worth thinking through rather than a rule. Its points to consider: term premiums rise as you get older to keep up with the cost of insurance; if you actually invest the difference, that money could help pay those higher costs; if you spend the difference, you may have to dip into other savings; and if your health declines, you may not be able to buy a new policy.

Two other notes from regulators:

The NAIC points out that calling term "temporary" isn't quite fair. It is probably no more temporary than auto or homeowners insurance, which also cover a set period and must be renewed.
Group life insurance through work is usually term coverage. TDI notes that it typically ends when you leave the job, which is one reason not to rely on it alone.

Questions to ask before you buy a term policy

How long is the level premium period, and what happens to the premium afterward?
Is the policy renewable, at what premiums, and up to what age?
Is it convertible, until when, and into which policies?
Is the premium fixed in the contract, or can the insurer change it up to a stated maximum?
What is the free look period? The NAIC's 2026 buyer's guide says it is usually 10 days after you receive the policy, but states set their own periods, so check yours.

Key takeaways

Term life pays only if the insured dies during the term and generally has no cash value.
Level term keeps the benefit steady; decreasing term shrinks it while the premium stays the same.
Renewal usually means a higher premium based on your age at renewal, and many policies stop renewing at a set age.
A conversion option can lock in insurability for permanent coverage, but only during the conversion period and at a higher premium.
Ask about maximum premiums, renewal limits and conversion terms before you sign.

Sources

Our articles are general information, not financial, insurance, tax or legal advice, and we don't sell insurance or recommend specific companies or products.

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