Term Life Insurance
As the name of this kind of life insurance implies, a term life insurance policy will cover you for a specific period of time, referred to as the “term”. You will typically see terms of 10, 15, 20, or 30 years, though you can find other policy lengths too. Most policies guarantee that your premium will stay the same during the entire term; however, that’s not always true, so it’s worth it to make certain before you buy.
With term life insurance, your policy won’t have any value once it expires, so people buy term life just for insurance coverage and not as a way to build an asset or save. This could be valuable to those looking to use life insurance purely as a replacement for their income in the off chance they pass away during a certain period. The term length that fits best for you will greatly depend on your financial circumstances, age, number of dependents, and more—keep reading to figure out what kind of term life insurance policy will likely suit you best.
Term vs whole life insurance
The biggest difference between term and whole life insurance is the cost. Term life insurance is generally more affordable than whole life insurance.
The reason for this lower cost is because term life insurance has some limitations that whole life insurance doesn’t, but you may find that these limitations work for you and your spouse. Bottom line, term life insurance only provides coverage for a specific period of time, and your beneficiaries will only receive payouts from the policy if you pass within that time frame. Your spouse or beneficiary will only receive money if you pass away within the time frame, and it has no cash value until the policy holder passes. This time frame, or “term”, usually is somewhere between 20-30 years, so your frame is actually decently large (meaning the risk that you pass away outside of it and don’t benefit from your life insurance policy is quite small) and you’re paying significantly less.
Whole insurance is meant to be more like an investment—the policy is designed to build cash value, and you’re meant to have it throughout your entire life. While this growth in your policy might sound tempting, some financial experts argue that there are better ways to invest your money.
How long should the term be on your policy?
If you decide to go with term life insurance, an important decision to make is how long you want your term to be.
The important thing to keep in mind, is the more financially stable and secure you are, the easy it is to be “self insured”. If you are debt free in your 50s or 60s, your kids are grown and college is paid for, and through retirement plans, savings, and other investments you have a large chunk of change saved up, you don’t have to rely on life insurance as much.
On the other hand, if you are a young newlywed still paying off student debt, or a new parent thinking of adding to your family and only a few years into your savings account and investments, you will benefit more from having term life insurance covering you for 20-30 years. This is mostly because you don’t yet have the financial backup to ensure your loved ones are covered if you unexpectedly die, so it’s worth it to spend a little extra every month on life insurance in case that happens. But if you’re closer to the example of the debt-free middle aged person, you might find that a long term life insurance plan isn’t quite as necessary—your partner will be covered by the
A few more things you should know about term life:
Renewable policies may give you the option to extend term coverage without health underwriting but typically at a higher premium.
Convertible policies let you buy permanent life insurance before the term expires. The permanent policy will also cost more than the term policy did for the same death benefit. You will have the option to reduce the death benefit to lower premiums.
Return-of-premium life insurance will refund all the premiums you paid if you survive your term policy, but it will also cost somewhat more than traditional term life insurance.
Who buys term life insurance?
Most people choose term life insurance because it’s cheaper than permanent (or whole) life insurance. This affordability is justified by the insurance company only having to cover you for a certain period of time, rather than your whole life. Since most insurance companies will have you go through some underwriting to assess risks, they might be more inclined to offer you a very affordable policy because they believe you have a low risk of passing away during the time the contract stays in force.
Life insurance is meant to replace your income when you die, so much like most other life insurance, people buy a term policy in order to ensure their dependents are still financially covered after their passing. Parents who are raising young families may buy term life insurance to make sure their dependents have financial security during their school years. People also commonly buy coverage after they buy a house to make sure that their family can make payments after losing income or the support of a caregiver. Term life insurance is for those that are looking strictly to have a financial replacement for their income in case they die, it is not an investment or a way to grow your cash.
Getting term life insurance quotes
There are many reasons to choose term life insurance as your policy, and if you’ve done so, now is the time to start comparing different term life insurance policies to find the one that suits you and your loved ones best. You can use our life insurance quoting tool to start searching for term life insurance policies, and get yourself covered with the right life insurance policy at the right price.