Term Life Insurance Coverage: An Expert Guide (2024)
A term life insurance policy guarantees life insurance coverage over a duration of time, unlike whole life insurance. The term life insurance costs for seniors is typically lower than whole life insurance policies, but you can find the best term life insurance rates by shopping around with multiple term life insurance companies. Compare term life insurance quotes now with our free comparison tool below.
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Laura D. Adams
Insurance & Finance Analyst
Laura Adams is one of the nation’s leading finance, insurance, and small business authorities. As an award-winning author, spokesperson, and host of the top-rated Money Girl podcast since 2008, millions of readers and listeners benefit from her practical advice. Her mission is to empower consumers to live healthy and rich lives by planning for the future and making smart money decisions. She rec...
Insurance & Finance Analyst
UPDATED: Mar 7, 2024
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Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.
UPDATED: Mar 7, 2024
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance provider and cannot guarantee quotes from any single provider.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
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Life insurance provides valuable peace of mind for people who may worry about the financial safety of their loved ones. It can ensure that your family will be cared for after your death, and it can help to mitigate any lingering expenses you may leave behind. Whether you choose a small policy to pay for funeral expenses or a larger one to provide years of support to your loved ones, life insurance is a good investment.
The most common and affordable type of life insurance is term life. Term life insurance policies are simple to understand and very flexible, which makes them an ideal choice for most people. If you’re considering life insurance, beginning your research with term makes a lot of sense. Enter your ZIP code in our FREE tool to get a quote today.
Read more: How does life insurance work?
How Does Term Life Insurance Work?
Policies are sold in predetermined lengths, such as 10 or 20 years. When you buy a term life insurance policy, you are guaranteed coverage for the duration of that period. But what happens to term life insurance if you don’t die? (For more information, read our “How long should life insurance coverage last?“).
Imagine, for example, that a person buys a $100,000 policy with a 10-year term. Whether that person dies in the first or tenth year of the policy, his beneficiaries will still receive the full $100,000. If the policyholder lives past the tenth year, the policy will end and a new one must be purchased.
Unlike other types of insurance, term life policies have no cash value. You cannot withdraw money or borrow against them. If you live past the end of the policy term, all money paid in premiums is gone. For this reason, some people look towards other products like whole life insurance or variable life insurance that has some cash value. However, term policies have many benefits over these other types of coverage, including lower premiums.
Read more: Term vs Whole Life Insurance: Which is better?
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What Does Term Life Cost?
There is no single price for any insurance policy. Term life insurance rates by age differ as do rates between providers, and two people with an identical policy may still pay different rates. The price of any life insurance policy is dependent on numerous factors:
- The age of the applicant
- The applicant’s general health and habits
- Whether the applicant has a dangerous job or hobbies
- The length of the policy term
- The amount of the death benefit
- Whether there are any limitations on the policy
In general, premiums become cheaper as the insurance company’s odds of paying a claim go down. In other words, young healthy people who are unlikely to pass away during the policy’s term will pay substantially less for insurance than elderly people or those with chronic illnesses.
Of course, it is often possible to obtain term life insurance even if you are not young or healthy, but you may need to make sacrifices. You might need to choose a policy that offers benefits from only certain causes of death, or you may need to choose a shorter term or lower death benefit than you might otherwise have wanted. The only way to know for sure which options are available to you is to start getting term life insurance quotes and comparison shopping between multiple insurers.
Read more:
- Best Term Life Insurance Companies
- Understanding Variable Life Insurance: What is it and how does it work?
- What are the benefits of having life insurance?
How Much Coverage Should I Get?
The amount of your term policy will vary depending on several factors. First, you’ll want to consider the cost: You don’t want to buy an expensive policy if you cannot afford its monthly premiums. Once you determine your budget, however, you’ll be faced with a few decisions.
Before you can know how much insurance you need, you must decide what the death benefit should pay for. Consider the needs of your loved ones and what might happen to them after you pass away. If you’re the primary income earner for your family, you will have different needs from a stay-at-home parent. If you have young children at home, you’ll want a different policy than a retiree.
In general, people use life insurance for one of three things:
- Paying off the insured’s final expenses. This includes funeral costs and any lingering medical debt associated with the insured’s death. This is the most common use of life insurance among elderly people, and it requires a relatively small death benefit.
- Providing financial security to the insured’s living relatives. In addition to paying for the expenses listed above, some insureds may wish to pay off any outstanding debts, like a mortgage, so that these are not passed down. A policy may also include several months or even a year’s worth of living expenses to give the family ample time to recover from the loss.
- Creating a nest egg for the insured’s beneficiaries. In addition to providing for their loved one’s immediate needs, a person may want to leave behind enough money that his family can truly benefit for the long term. A common example is buying a policy that can pay for a child’s college tuition if the parent dies.
Read more: What happens to debt when you die?
A good rule of thumb is to start with ten times current earnings or the cost to replace the services you provide for the household. A primary income earner making $50,000 a year for example, may consider a term life insurance policy for $500,000. A stay-at-home parent may opt for a policy that is ten times more than the cost of hiring a nanny, a cleaning service, laundry services, and anything else they perform on a regular basis. (For more information, read our “How much does a $500000 life insurance policy cost?“).
Once you’ve considered your family’s needs, you can decide for yourself how much insurance you need to buy. From there, you can begin comparison shopping among insurers to get the best deal on a policy. Together, you and your insurance company can work to create a policy that will fit your family’s needs as well as your budget.
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Case Studies: Exploring Real-Life Scenarios in Term Life Insurance
Case Study 1: The Smith Family
The Smith family consists of John (40 years old), his wife Sarah (38 years old), and their two children. John is the primary income earner, making $60,000 a year. They are concerned about ensuring financial security for their family in case something happens to John. After considering their needs, they decide to purchase a 20-year term life insurance policy with a death benefit of $600,000.
Case Study 2: The Johnsons’ Mortgage Protection
Mark and Lisa Johnson recently purchased their dream home with a mortgage of $300,000. They want to make sure that their mortgage is protected in case of an unexpected tragedy. They opt for a 30-year term life insurance policy with a death benefit of $300,000, which would cover the outstanding mortgage balance and provide additional financial support for their family.
Case Study 3: The Young Professional
Emily, a 28-year-old professional, wants to secure financial protection for her future. She decides to purchase a 15-year term life insurance policy with a death benefit of $500,000. This coverage will help ensure her family’s financial stability and cover any outstanding debts or expenses if something were to happen to her during the policy term.
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Frequently Asked Questions
What is term life insurance?
Term life insurance is a type of life insurance policy that provides coverage for a specific period, known as the term. If the insured individual passes away during the term of the policy, a death benefit is paid out to the designated beneficiaries.
How does term life insurance differ from other types of life insurance?
Term life insurance differs from other types of life insurance, such as whole life insurance or universal life insurance, primarily in terms of duration and cost. Term life insurance offers coverage for a specific term (e.g., 10, 20, or 30 years) and generally has lower premiums compared to permanent life insurance policies. Unlike permanent life insurance, term life insurance does not build cash value and expires at the end of the term unless renewed or converted.
How much coverage do I need with term life insurance?
The amount of coverage you need with term life insurance depends on various factors, including your financial obligations, income replacement needs, debts, and future expenses such as mortgage payments, education costs for children, or other financial responsibilities. It is recommended to evaluate your specific circumstances and consult with a financial advisor or insurance professional to determine the appropriate coverage amount for your needs.
What are the benefits of term life insurance?
Some key benefits of term life insurance include:
- Affordable premiums: Term life insurance typically offers lower premiums compared to permanent life insurance policies, making it more accessible for many individuals and families.
- Flexibility: Term life insurance allows you to choose a specific term that aligns with your coverage needs. You can select a term that corresponds to major life events or financial obligations.
- Income replacement: Term life insurance can provide a financial safety net for your loved ones by replacing your income if you were to pass away during the policy term.
- Debt protection: It can help cover outstanding debts, such as mortgages, student loans, or credit card debt, so that your family is not burdened with these obligations.
Can I renew or extend my term life insurance coverage?
Term life insurance policies generally offer the option to renew or extend coverage at the end of the initial term. However, the premiums for the renewed coverage may increase based on factors such as age and health. It is important to review the terms of your policy to understand the renewal options available to you.
Can I convert my term life insurance policy to a permanent life insurance policy?
Many term life insurance policies offer a conversion option, allowing you to convert your policy to a permanent life insurance policy, such as whole life or universal life insurance, without the need for a medical exam. Converting your policy provides the opportunity for lifelong coverage and the potential to build cash value. It is advisable to check the terms of your policy and consult with your insurance provider to understand the conversion options available to you.
How do I apply for term life insurance coverage?
To apply for term life insurance coverage, you typically need to follow these steps:
- Research and compare insurance providers: Obtain quotes from different insurance companies to compare coverage options and premiums.
- Determine the coverage amount and term: Assess your needs and decide on the coverage amount and term that best suits your financial goals.
- Complete the application: Fill out the application form provided by the insurance company, providing accurate information about your health, lifestyle, and personal details.
- Undergo the underwriting process: The insurance company will evaluate your application and may require you to undergo a medical exam or provide additional information.
- Review and accept the policy: Once your application is approved, carefully review the terms and conditions of the policy.
Are you looking for free insurance quotes?
Your one-stop online insurance guide. Get free quotes now!
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Laura D. Adams
Insurance & Finance Analyst
Laura Adams is one of the nation’s leading finance, insurance, and small business authorities. As an award-winning author, spokesperson, and host of the top-rated Money Girl podcast since 2008, millions of readers and listeners benefit from her practical advice. Her mission is to empower consumers to live healthy and rich lives by planning for the future and making smart money decisions. She rec...
Insurance & Finance Analyst
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.