What is a Term Life Insurance Policy?

How Term Life Insurance Works

 

Term life insurance provides you with temporary life insurance for a specific number of years. You can choose coverage for a "term" of 10, 15, 20 or 30 years.

Term life builds no cash value inside the policy, it is not an investment, it is "pure protection".

That’s why it usually costs 2 to 3 times less than permanent life insurance.

Term life is the lowest cost type of life insurance.

Term life insurance lasts for a set period of time up to 30 years.

Term life policies pay the beneficiary the face amount of the term life policy if the insured person dies during the term of the policy. 

For example, a 10-year term life policy with a face amount of $250,000 would pay $250,000 to your beneficiary if you die any time during those 10 years. 

If you're alive at the end of the policy term, the coverage ends. 

Get a Free Quote for Term Life Insurance

 

Features of Term Life Insurance

 

Level

The annual insurance premium for your life insurance policy stays the same each year. The face amount of life insurance coverage also stays the same. Level term life insurance policies can last up to 30 years.

Convertible

Before the end of the term for your policy, the life insurance policy owner (you) may be able to convert the term life insurance policy into a permanent life insurance policy. The owner usually has a specific number of years during the term life insurance policy to convert the policy. Your life insurance premiums will be higher for the permanent life insurance.

Renewable

Term life insurance policies that are renewable offer the owner of the policy the option of renewing the life insurance policy at the end of the term, up to a specific age limit (usually age 65 or 70).

For example, a 15 year policy may be renewed for another 15 years when the first policy ends. If the policy is renewed, a medical exam may or may not be required. The term life insurance premium will usually increase when the policy is renewed.

 

Benefits of Term Insurance

 

How Life Insurance Can Benefit Your Family

Life insurance policies can provide your family and loved ones with financial security after a parent, spouse or income-earner passes away.

Two of the major ways life insurance provides protection for your family is by providing for two of your biggest expenses:

1. Home Mortgage
2. Education and College Tuition and Expenses

Providing for your family’s mortgage and your child’s education may be the largest expenses you have as a family. It’s important to consider these expenses when deciding on the right amount of life insurance protection.

If you currently have these financial commitments, it would be wise to own a life insurance policy. 

 

Using Your Life Insurance Policy to Settle Your Estate

You have the option of designating your life insurance death benefit proceeds to pay for your estate settlement. There may be estate taxes owed when settling your estate. Instead of your family selling their home to pay for estate taxes owed, you may want to use your life insurance policy to pay estate taxes.

 

Charitable Contributions

You also have the choice of making a charitable organization the beneficiary of your life insurance policy. If you pass away, the proceeds of your life insurance policy would be paid to the charitable organization.

 

Business as Beneficiary

If you own a business, you could choose to name the business as the beneficiary of your life insurance proceeds. The business could use the money from your policy to pay off loans, debts, or it could be invested by the business.

 

Advantages of Term Life Insurance

 

• Premiums are usually much lower for Term life insurance compared to whole life insurance. 
• Term life provides funds for people who depend on you for financial support.
• Creates an estate to leave to your heirs, if you haven’t had a chance to build much wealth.
• Level term life insurance premiums remain the same for the term of the policy. So, 20 year level term means your premiums stay the same for 20 years.
• Provides the maximum life insurance protection for your dependents at the lowest cost.
• Provides affordable life insurance protection to fit almost any budget.
• Many term life policies offer you the option to convert your coverage to whole life insurance by some future date, (without having to prove insurability – taking a medical exam).

 

Disadvantages of Term Life Insurance

 

• If you outlive your term insurance policy, your premiums to buy a new policy will be much more expensive.
• If you do convert your term insurance to whole life – your premiums will be much higher for the same amount of coverage. 
• Premiums usually increase with age, unless you buy level term life insurance.
• When your policy expires, you may not be in good health, and unable to qualify for another life insurance policy at that time.

 

Reasons to Buy Term Life Insurance

 

Although the reasons noted indicate a situation better suited for a permanent life insurance policy, there are several advantages of term life protection for your family, including:

1. Cost – Term life offers by far the lowest prices on life insurance which means you can afford the maximum amount of coverage based on your budget. Don’t you want to provide your loved ones with the largest amount of protection your budget can afford?
2. Flexibility – Term life offers you options of coverage lasting for a period of 10, 15, 20 or 30 years. Why pay more for life insurance when you only need it for a short period of time?
3. Easy-to-Understand – With term life you have protection for the duration (term) of your policy, up to 30 years. If you outlive the term, your coverage ends with no pay out. If you pass away during the term, your death benefit is paid out to the beneficiary or beneficiaries you select.

 

With level term insurance, you pay the same amount of money (premium) for your life insurance coverage each year for the period of time you have coverage (term). In addition, the amount of life insurance provided by your term policy remains the same for the entire duration of your policy.

 

The Most Common Reasons for Not Purchasing 

a Term Life Insurance Policy

 

• Need lifetime life insurance protection.
• Guaranteed level premiums for the life of your policy.
• Create cash value that grows over time inside your policy.
• Guaranteed funds to pay for your final expenses.
• Provide money to pay for estate taxes.
• Budget is not a consideration.
• Leave a legacy to your heirs.
• Need life insurance protection and an investment.
• Grow cash value tax-deferred.
• Loans available from the cash value inside your policy.

 

Who Purchases Term Insurance?

Here are some examples of people who may buy term life insurance:

• A Homeowner
• Someone with a Mortgage Loan
• Someone with a Car Loan
• Someone with a College Loan
• Married Couples
• People with One or More Children
• Divorced Parents
• Single Parents
• Widowers
• If You Have Someone That Relies on You for Financial Support

 

Why Purchase a Term Life Insurance Policy? 

• On a Budget and Need the Maximum Amount of Life Insurance for Your Money
• Need 30 Years or Less of Life Insurance Protection
• Own a Home and Want to Protect the Mortgage
• Married and Want to Protect Your Spouse
• Starting a Family and Want to Protect Your Family’s Future
• Have Children and Want to Provide for Your Child’s College Education

 

How Much Does Term Life Insurance Cost?

The cost of a term life plan can vary based on several different factors. 

For instance, the amount of life insurance will affect your premium, as well as, the length of time you have term life protection - 10, 15, 20 or 30 years.

In addition, rates will vary by insurer based on each insurer's pricing guidelines and their loss experience for certain types of risk, such as, senior citizens or people with diabetes, or smokers.

 

How Can You Find Out How Much Your Term Insurance Plan Will Cost?

You can contact a local life insurance agent or you can compare free, instant term life rate quote comparisons online from several leading insurance companies.

Compare Term Life Insurance Quotes

 

What Factors Determine the Cost of Term Life Insurance?

There are several factors that may affect your rate for term life insurance, including but not limited to:

• Age
• Gender
• Health and Family Health History
• Occupation
• Hobbies
• Type and Amount of Term Life Insurance
• If you Smoke or Not
• Height-to-Weight Ratio
• Driving Record
• Credit History
• Lifestyle

  

How Much Life Insurance Coverage Do I Need?

One way to decide how much term life insurance you should buy is to consider the needs of your family if you were to pass away prematurely. 

Term Life insurance may provide financial security to meet many of your family’s needs by providing a fund they can use to:

• Pay off an individual’s debts, such as medical bills, funeral expenses and health care costs
• Pay for estate taxes and other expenses related to settling their estate
• Provide a lifetime income for your spouse 
• Pay off an existing mortgage on your home
• Pay for your child's college education 
• Provide retirement funds for your spouse
• Provide an adequate income for your spouse to give your family time to adjust to a new standard of living without you or your income
• Receive interest to provide money for some special need – such as travel, education or health care costs.
• Provide a monthly income until your children are grown up and living on their own. 

 

Use a life insurance needs calculator to help you determine the right amount of life insurance protection for your situation.

 

How Long Does Term Insurance Last?

Term life insurance by definition is "temporary" insurance for a certain number of years.

The term of the policy is the duration, how long your coverage will last.

You select a term when comparing price quotes so you can find out how much your term insurance will cost for the specific duration of your policy.

 

Term Options for Life Insurance

Terms Duration Options:  10, 15, 20, 25 or 30 years.

Most term life plans offer coverage for a period from ten up to thirty years.

However, you may be able to select a duration of coverage for 10, 15, 20, 25 or 30 years.

 

How Long Do I Need Term Insurance to Last?

Term insurance can last as long you need protection, usually up to a period of thirty years. You’ll want to select a term period that is in line with your actual need for protection.

So, consider what goal you want your term policy to accomplish, providing protection for your mortgage, child’s education, family’s living expenses, etc. 

Then consider the length of time you need life insurance to accomplish each of your goals.

What is the Longest Period of Time Insurance is Needed? 

Once you know this answer you can select coverage for that "term" (length of time).

Or, you could have separate term life insurance policies with the specific amount of coverage needed and duration of coverage for each of your family’s needs. That way, you get the overall lowest cost of coverage that is designed for your specific needs.

 

Do I Have to Take a Medical Examination?

There are traditional term life insurance policies available which do require the applicant for coverage to submit to a medical examination.

However, some insurers offer no medical exam term life policies for healthy individuals between the ages of 20 to 60.

 

How Long Does It Take to Get Insured?

It depends on the type of term life policy you want to purchase. 

Traditional term plans require an underwriting process including a medical exam, and may take up to 3-4 weeks for approval and your policy to be issued.

Whereas, quick issue term life policies offer you the option to apply for your policy online and start your life insurance coverage today, if you qualify.

 

Can I Apply Online for Term Life?

Yes, there are insurers that offer you the option to apply online (safe and secure) for your term insurance coverage. It usually takes about 15 to 20 minutes to apply over the internet.

 

How Can I Save Money on Term Life Insurance?

• Compare Rates – By comparing rates you may save up to 70% on your life insurance because each insurer has their own set of rates, and rates can vary quite a bit between companies.
• Choose Term Life – Term life insurance is the cheapest form of coverage offering the lowest rates by far, compared to permanent life insurance.
• Don’t Buy More Life Insurance Than You Need – Use a life insurance needs calculator to determine how much life insurance you really need.
• Choose Annual Premium Payments – They are lower than paying monthly premiums. The insurance company charges a finance fee for monthly payments. 
• Quit Smoking – Smokers pay 2 to 3 times more for the same amount of life insurance compared to Non-smokers. So, if you smoke, it pays to quit smoking.
• Get Healthy – Lower your cholesterol level and your weight to qualify for lower rates on your life insurance.
• Buy at Least 6 Months Before Your Next Birthday – Rates are based on your age closest to your birthdate. So, if you buy within 6 months of your next birthday, you will be charged based on that age, not your current age.
• Buy Coverage While You are Young and Healthy – Rates for younger adults are lower, and healthy people get lower rates on life insurance than those with health issues.
• Avoid High Risk Hobbies – People who take part in high risk hobbies; such as, B.A.S.E. Jumping, mountain climbing, racer driving or skydiving pay a higher rate for life insurance.

  

Tips for Comparing Term Life Quotes

• Compare Rates from several life insurance companies, because pricing does vary by insurer.
• Compare Pricing for 10, 15, 20 and 30 years of term life coverage.
• Review the Financial Strength Ratings of the insurance companies.
• Don’t Buy More life insurance than you Need.
• Buy life insurance while you are Young and Healthy, as rates increase with age.
• Comparing different Limits of Coverage, as you may find it's not that much more costly to buy a higher limit of life insurance; for instance, $300,000 instead of $250,000.

 

Term Life Insurance Quotes

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