Term Life Insurance
Written By Doug Mitchell
- Doug Mitchell, CLU
Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health. Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.
- Fact Checked by
Holly Mitchell &
- Holly Mitchell
Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.
Rob Pinner &
- Rob Pinner
Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.
Louis LaBash
- Louis G. LaBash
Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.
- Updated on September 23, 2024
What Is Term Life Insurance? A Complete Guide
Have you selected a life insurance policy that leaves your family in a financially secure situation after you’ve passed away? It is arguably one of the most important decisions that you’ll ever have to make for the sake of your loved ones.
There are many different insurance varieties and policies, and many people choose a straightforward option known as term life insurance. Let’s explore what term life insurance is, how it works, and whether it’s the right choice for you.
How Does Term Life Insurance Work?
So, what is term life insurance exactly, and what are the pros and cons of choosing this kind of financial instrument?
On the most basic level, a term life insurance policy will cover you for a specific time, which you pay for at a fixed rate. Once the term has run its course, your eligibility will cease, and you’ll need to seek additional coverage if you wish to continue.
It’s one of the simplest and most cost-effective ways for someone to purchase a significant death benefit, and that’s why it is so popular in today’s insurance industry.
- Provides income replacement for your family
- Covers short-term debts
- Offers additional insurance coverage during child-raising years
Types of Term Life Insurance
Depending on your coverage needs, there are various types of term life insurance policies available. Let’s break down the different types and help you decide which one fits your situation best.
| Type of Term Life Insurance | Description | Key Features |
|---|---|---|
| Level Term Life Insurance | Provides consistent coverage and premiums throughout the entire term. |
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| Decreasing Term Life Insurance | Premiums stay the same, but the death benefit decreases over time. |
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| Renewable Term Life Insurance | Allows you to renew the policy at the end of the term without needing a new application. |
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| No Medical Exam Term Life Insurance | No medical exam is required to obtain coverage, but premiums are higher. |
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| Convertible Term Life Insurance | Allows you to convert a term policy into a permanent life insurance policy. |
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Different Term Lengths for Term Life Insurance
Term lengths for term life insurance can vary from one year to thirty years. It’s important to know which term length makes the most sense for you. Policies are most commonly available in increments of one year, five years, and ten years.
If the insured person passes away during the term of coverage, their listed beneficiaries receive the payout from the policyholder’s insurance company.
Level Term Life Insurance
Level term life insurance offers the same coverage throughout the term. It is the most consistent policy option and is often chosen by mortgage owners because it can provide coverage towards their mortgage in a lump sum if they should pass during the policy’s term.
Decreasing Term Life Insurance
Decreasing term life insurance requires the same premium payment throughout the term, but the benefits reduce over time. This type of policy is most beneficial for individuals who are paying off significant loans.
Renewable Term Life Insurance
Renewable term life insurance allows you to extend your short-term policy without applying for a new one. You can renew it annually or every five years, depending on the policy, which saves time and effort in paperwork.
No Medical Exam Term Life Insurance
No medical exam term life insurance is an option for those who prefer not to undergo a medical exam. However, it usually comes with a higher premium.
Convertible Term Life Insurance
This policy offers the flexibility to convert your term life policy into a permanent life insurance policy without going through another medical review. Experts recommend choosing a convertible policy in case your financial situation changes, making permanent coverage a better fit later on.
Factors That Influence Term Life Insurance Premiums
The cost of your premiums is influenced by several factors, including your age, gender, general health, and other factors that determine your life expectancy. Occupation, family history, and health habits also play a role.
The lower your risk to the insurance company, the lower your premium will be. Term life insurance premiums are among the most affordable options in the industry because most policyholders outlive their term life policies, meaning insurers rarely pay out a death benefit.
Is Term Life Insurance Right for Me?
Term life insurance is a fantastic option for people who want substantial coverage for the least amount of money. It’s particularly appealing to young families who want the security of knowing that lost income can be replaced, should a parent die unexpectedly.
Top Benefits of Term Life Insurance
- Low premiums compared to permanent life insurance
- Substantial death benefit coverage
- Flexibility to convert to permanent insurance
- Simple and straightforward policies
FAQs
What is the difference between term life insurance and whole life insurance?
Term life insurance covers you for a specific period, while whole life insurance provides lifelong coverage. Term life is typically more affordable, but whole life offers permanent protection and can build cash value over time.
How long should my term life insurance policy be?
The ideal term length depends on your financial goals. If you need to cover your mortgage or your children’s education, choose a term that aligns with those financial obligations.
Can I renew my term life insurance policy?
Yes, many term life insurance policies offer a renewable option that allows you to extend your coverage without having to reapply or take another medical exam.
Is a medical exam required for term life insurance?
Not all policies require a medical exam, but no-exam policies often come with higher premiums. A medical exam can lower your rates if you’re in good health.
Can I convert my term life insurance policy to permanent life insurance?
Yes, many term life policies offer the option to convert to a permanent policy without going through a medical review. This is a great choice if your financial situation changes over time.
Conclusion
Term life insurance is a budget-friendly option that provides substantial coverage for your family. Whether you’re looking to replace income, cover debts, or secure your family’s future during your child-raising years, term life insurance is one of the most affordable and flexible ways to get the protection you need.
Ready to secure affordable coverage for your family? Use our free term life insurance quoter on this page.