What is the Definition of Term Life Insurance Coverage?
Term Life is a type of life insurance policy that provides insurance protection lasting for a specific period of time, usually up to 30 years.
If the insured person dies during the time period specified in a term insurance policy and the policy is active (In Force), a death benefit will be paid out to the beneficiary(s) of the policy, subject to the terms, conditions and exclusions stated in the life insurance policy.
Many term policies offer level premiums that stay the same for the entire duration of your policy.
Other term life policies offer decreasing benefits over time, as well as, the option to convert from your term (temporary) coverage to permanent life insurance.
Term insurance is initially much less expensive when compared to a permanent life insurance policy. Unlike most types of permanent insurance, term life has no cash value. In other words, the only value is the guaranteed death benefit from the insurance policy.
Understanding How Term Life Insurance Coverage Works
There are various types of term policies available. Many of these policies offer level premiums for the duration of the policy, such as 10, 15, 20, 25 or 30 years. These are often referred to as "Level Term" life policies.
A Premium is a specific cost, which is typically monthly, that insurance companies charge the policyholders to provide the death benefits that come with a life insurance policy.
The insurance company calculates the premiums based on the individual's age gender, health and longevity (life expectancy). A physical exam that reviews the person's health and family health history might be required by the insurer. The medical exam is paid for by the insurance carrier.
The premiums are fixed and paid for the entire duration of the life insurance policy term. If the policyholder dies prior to the expiration date on the policy, the life insurer will pay out the face value (death benefits) of the policy to the beneficiary. If the policy term expires and the individual is still alive, there would be no coverage, and no payout of any death benefits.
However, policyholders for term life can extend or Renew their life insurance coverage, but the new monthly premiums will be based on the person's age and health at the time the policy is renewed, which means higher premiums for the renewal policy.
As a result, the premiums could be much higher for the renewed term life policy compared to premiums paid for the original term insurance policy that started when the insured was younger.
Premiums can vary quite a bit depending on the insured’s age, and the amount of life insurance provided by the policy.
For example, a 30-year policy with a $250,000 payout can range from $15 per month for a person in their twenties to around $60 per month for someone in their fifties.
However, each life insurer may charge different rates depending on the policyholder's health, age, tobacco use, driving record, lifestyle, and other important personal risk factors.
Types of Term Insurance Policies
There are various types of term life plans available besides the level term policies we've outlined above. Each term policy has its pros and cons, depending on the needs of the life insurance policyholder.
Level Term
Level term is a type of temporary life insurance that provides you with coverage lasting up to thirty years.
Your premiums you pay are the same each year you are insured, and the amount of life insurance provided by your policy remains the same each year throughout the entire life of your term policy.
Level term insurance plans offer the lowest prices available on life insurance coverage lasting for a duration of 10 to 30 years.
Convertible Term Life
Convertible term life insurance allows a term insurance policy, which has a limited number of years before expiring, to convert into permanent insurance.
The major benefit of convertible insurance is that the policyholder doesn't have to submit to a new health exam, nor are any health conditions considered when the policy converts into permanent life insurance.
Increasing Term Life
Some policies allow you to increase the death benefit in the future. The premium increases as well, but it allows policyholders to pay lower premiums early on in life when they have a lot of bills and expenses, and may not be able to afford more coverage at the time.
The increasing term option prevents having to qualify for another policy at an older age to get the added death benefit coverage as would be the case with traditional term life insurance policies.
Decreasing Term or Mortgage Term
A mortgage term or decreasing term insurance policy is the opposite of the increasing term because the death benefit amount decreases over time, as you get older.
The goal is to match the decline of the term life death benefit to the reduction of the policyholder's outstanding home mortgage loan. The idea behind this strategy is that you don't need as much life insurance if you have less mortgage debt to protect.
However, the premium payments remain the same each year of your coverage, even as the benefit declines over the years.
Annual Renewable Term
As each year passes, the term insurance is renewed but for a higher premium since the policyholder is one year older with each policy renewal.
The benefit to annual renewable term insurance is that the coverage is guaranteed to be approved each year at renewal, regardless of any change in your health.
However, it may not be the most cost-effective option for everyone due to the increased costs over time, if you need to renew your policy for several years.
Main Features of Term Life Insurance
A guarantee on the premium and survivor benefit for a defined amount of years, depending on the insurance company, age of the insured person, and other factors.
What is Term Life Insurance and Do You Need It?
The idea behind term life insurance is that you have a policy when you need it - when your children are young, or your spouse needs your income to be protected in case you die.
By the time the policy term expires, your kids should be grown up and on their own, and you should have savings in the bank so your spouse no longer relies on your paycheck each month.
Why Buy a Term Life Insurance Policy?
A term policy helps you prepare for uncertainties, guaranteeing financial protection for the future of your loved ones, in case you die unexpectedly.
One of the most cost-effective methods by which to mitigate this risk, term insurance is popular primarily because it’s very affordable and can provide large amounts of financial protection for your family.
What is the Difference Between Term Life and Permanent Insurance?
Whole (permanent) life insurance is a type of permanent insurance that provides lifetime protection, a death benefit and accumulates cash value inside the policy over time.
The primary difference between whole life and term life is the duration of the policy. A whole life policy ends when you die, while a term policy lasts for a pre-determined period of time, usually 30 years or less.
Should I Convert My Term Policy to Permanent Coverage?
That means you can make the coverage last your entire life by converting some or all of your term life insurance coverage into a permanent policy.
Most term insurance policies are convertible.
How Long Your Term Insurance Policy Should Last?
Your policy's "Term Length" is the policy's duration of coverage – How long you are insured. Most term life policies last 10, 15, 20 or 30 years. You want a term length that covers the entirety of your financial obligations or outstanding debts, so you have protection for as long as you need it.
Understanding the "Term" of Term Life Insurance
With a term life policy, you’ll choose a term length, usually anywhere from 10 to 30 years, and pay a monthly premium in exchange for your life insurance coverage. The amount of insurance coverage can vary depending on how much life insurance you need.
How Do You Convert Term to Permanent Life Insurance?
How to convert term to whole life insurance:
What is the Longest Term Life Policy Available?
You can now buy term life insurance with a term period of up to 35 years from American General Life Insurance Company. Until now, the longest-term period available was usually around 30 years.
Does Term Insurance Coverage End at a Certain Age?
Yes, generally term insurance policies end or expire at a certain age. The exact age depends on the particular policy, but age 70 or 85 is common.
Term insurance policies are often renewable and convertible. That means that they renew for a higher premium at the end of each term 10, 20 or 30 years, for example.
Features of Term Life Insurance
Advantages of Term Insurance
One of the primary benefits of term insurance is its lower initial cost when compared to permanent life insurance.
The reason it’s cheaper is that, with a term policy, you’re typically just paying for the death benefit, the payment your beneficiaries will receive if you pass away during the term of the policy.
Term Life Insurance Quotes
Top Pick – JRC Insurance Group
JRC Insurance Group helps you shop, compare and save on life insurance. Regardless of your age or health background, we'll shop our 40+ insurance companies and find you affordable life insurance you need to protect your family and fit your budget. Compare the best life insurance rates for savings up to 73%. Get Your FREE Quote.
Death Benefit Only Life Insurance | Globe Life Insurance
Term Life Insurance Definition
Disclosure: Compensated Affiliate