Term life insurance is a form of life insurance that lasts for a set number of years — known as the term — before expiring. If you die before the term is up, your beneficiary — usually your family — receives a death benefit as a tax-free lump sum of money that can be used for funeral expenses, to pay bills, or for any other use.
Unlike whole life insurance and other forms of permanent life insurance, term policies don’t come with a tax-deferred savings component called the cash value. The cash value of a permanent life insurance policy accrues interest and can be used by the policyholder while they are still alive, while also usually making the life insurance policy costlier.
Due to its simplicity and affordability, purchasing term life insurance is one of the most popular ways to create a financial safety net. However, other types of life insurance can be a better fit for individuals with specific circumstances, such as lifelong dependents or a high net worth. Speaking to a life insurance adviser is the best way to determine what type of policy is the best fit for you.
In this article:
Term life insurance is very straightforward. There are only a few things you need to know to get started in understanding it.
|TERM LIFE FEATURES|
|Average Duration||10-30 Years|
|Guaranteed Death Benefit?||Yes|
The primary element of term life insurance that sets it apart from other types of life insurance is the term – how long the policy is in effect.
Term periods usually last anywhere from 10 to 30 years, and you pay a monthly or annual premium during this time to keep the policy active. Once the term is up, you no longer pay the premiums and the policy expires.
Depending on the type of term life insurance you have, the premiums can:
The purpose of life insurance is to protect your loved ones from financial obligations if you’re not around to provide for them.
When you’re still saving for retirement, paying off a mortgage, or raising children and planning on sending them to college, life insurance makes sense. But eventually you’ll have saved for retirement through a 401(k) or IRA, you’ll have paid off your mortgage, and your kids will be out of the house with families of their own.
So why pay for life insurance when there are few – or no – financial obligations to account for?
The fact that term life insurance expires, and there are no additional fees associated with it, is what makes it the most affordable life insurance option. Don’t fret that your life insurance policy expires: that should be part of the plan.
If you outlive your term life policy, the policy expires and you are no longer covered. You have several options after that:
If you die while your life insurance policy is still in force, your beneficiaries receive a tax-free lump sum called the death benefit which can be paid out all at once or over the course of their lifetime.
Since term life insurance protects your family for a set period of time while they’re still depending on your income and not for your entire life, term life insurance rates are much cheaper and offer more affordable financial protection than permanent policies like whole life.
Methodology: Sample monthly premium rates based on 20-year term life insurance policy for a non-smoker male in Preferred health rating; quotes based on policies offered by Policygenius in 2020.
In general, life insurance costs are determined by:
Because age is one of the major deciding factors in a life insurance policy’s cost, it’s important to know how term life insurance rates increase by age when you’re deciding when to buy and what type of coverage you should get.
Besides health and age, you need to take into account the amount of coverage a term policy provides to determine the final cost. You want to keep the policy affordable (there’s no point in having a policy that you won’t be able to pay for) while still making sure your family will be able to cover their financial needs.
When deciding how much term life insurance you need, you should take into account:
In general, your term life policy should last as long as your longest debt (usually a mortgage) and should cover any remaining costs when you subtract your debts from your existing assets.
Of course, you don’t need to crunch all the numbers by hand. You can use our free life insurance calculator to get a tailored recommendation for the term length and coverage amount we think you should have.
Wondering if term life insurance is right for you? Consider the potential pros and cons:
|Cheapest life insurance option||Coverage doesn’t last your entire life|
|Lasts for a set period of time so you aren’t paying for coverage you don’t need||Doesn’t provide a cash-value component|
|Provides enough financial assistance to pay off debts, cover future costs, and provide a financial safety net|
Most insurance shoppers will need to decide between buying term life insurance or whole life insurance.
The main differences in term life insurance vs whole life insurance are:
Because of the cash value and associated fees, whole life insurance is six to 10 times the cost of comparable coverage with term life. For this reason, whole life isn't the right choice for most people. It can be useful for people with complex financial plans, but a majority of people will benefit more from a simple term life policy that they can afford.
What is the best term life insurance company for you? That depends on your specific situation. Most people prefer to choose the carrier that offers the best price and that’s a good starting point.
However, you should also consider a company’s customer service record, ratings from J.D. Power, A.M. Best and the Better Business Bureau, and what tasks you can do online versus on paper or over the phone, for your convenience. Use the table below to see Policygenius’ reviews for every life insurance company we work with.
You should also take into account how each company treats certain health conditions and lifestyle choices. This can make a huge difference in the final cost of your term policy.
See our full page dedicated to the best life insurance companies and start your search with the best carriers for your specific scenario.
While term life insurance is the most basic, straightforward type of life insurance, there are still variations on it so you can get the insurance policy that fits your needs. These include:
If you have anyone who is financially dependent upon you, and you don’t have enough money set aside to provide for their financial needs should you die tomorrow, then life insurance is absolutely worth it. It should be your top insurance priority. And since term is cheaper and simpler than permanent, it’s easier to fit it into both your present-day budget and your long-term financial strategy.
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Yes, we have to include some legalese down here. Policygenius Inc. (DBA Policygenius Insurance Services in California) (“Policygenius”) is a licensed independent insurance broker. Policygenius does not underwrite any insurance policy described on this website. The information provided on this site has been developed by Policygenius for general informational and educational purposes. We do our best to ensure that this information is up-to-date and accurate. Any insurance policy premium quotes or ranges displayed are non-binding. The final insurance policy premium for any policy is determined by the underwriting insurance company following application.
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