Term life insurance is a top choice for people who want to comprehend financial obligations that are common when raising a family unit.

With term life insurance in place, there's a rubber net that can provide funds for paying a mortgage, sending kids through college or other important concerns if you lot were no longer effectually.

What Is Term Life Insurance?

Term life insurance is a contract between a policyholder and an insurance visitor that says if the insured person passes away within the fourth dimension period of the policy, the insurer will pay a expiry benefit to the beneficiaries named on the policy.

If you're ownership term life insurance, you lot have two main decisions to brand: the length of the term and the coverage amount.

How a Term Life Insurance Policy Works

A term life insurance policy'southward annual costs remain the same every yr for the level term period, such as 10 or 20 years. Once the level term period is over, you can mostly renew the policy, but at higher rates each year you renew.

The policy expires if you lot outlast the length of the policy without renewing. You receive none of the premiums paid into the policy unless you bought a return of premium term life insurance policy.

Many people buy term life insurance for income replacement. They're looking for life insurance that will provide funds for a family to pay expenses for a sure number of years if they were no longer there to work and earn money. Term life is expert for:

  • Roofing the years of a mortgage, so another borrower does non have to sell the firm.
  • Covering other specific debts that would be passed on to someone else.
  • Covering the years until children accept graduated from higher, to make certain at that place are funds for tuition and living expenses.

The policyholder chooses both the length of the term and the coverage amount, such every bit $500,000.

If the insured person dies while coverage is in force, the beneficiaries receive the policy's death do good.  If the insured person lives longer than the policy'due south term and doesn't renew information technology, the coverage ends.

Y'all may be able to convert the term life policy to a permanent life policy, such as a whole life or universal life insurance. This is a useful tactic if you realize you lot want longer life insurance coverage and don't want to shop for a new policy, perhaps because your current wellness would get in difficult.

Types of Term Life Insurance

Level term life insurance

A level term life insurance policy maintains the same premiums and death benefit throughout the term. Rates won't increase equally you age and the death benefit is consistent whether y'all die in the first or final year of the policy.

A level term life policy could be good for someone who wants consistency for many years.

Annual renewable term life insurance

An annual renewable term policy's premiums increase each yr yous renew it. When you cull this policy, you're guaranteed to proceed coverage and don't need to reapply.

Information technology may be good for people who want to fill up a short gap in life insurance. However, a curt level term life policy may exist a better selection.

Decreasing term life insurance

A decreasing term life insurance policy's premiums stay the same over the length of the policy but the death benefit decreases steadily over fourth dimension.

Mortgage life insurance is a form of decreasing term life. Here the payout is tied to the declining balance of your mortgage, and the casher is the mortgage lender, non your family unit.

Regular term life insurance is a improve bet considering your family unit receives the payout and can use it for any expenses they choose.

Render of premium term life insurance

A return of premium term life policy promises to refund the premiums you paid if you outlive the policy. As you lot can imagine, the refund feature makes the policy more than expensive.

Return of premium term life is available from companies such every bit Cincinnati Life,  State Farm Life and Vantis Life.

How Much Does Term Life Insurance Cost?

Historic period and wellness are significant factors in life insurance rates when yous're buying a policy. Below are examples of rates for healthy life insurance buyers.

Examples of annual costs for 20-year, $1 million term life insurance

Factors That Could Touch Term Life Insurance Rates

The term life insurance coverage amount and term length touch your premiums. Other factors in life insurance quotes include:

  • Age
  • Gender
  • Height and weight
  • Current and past health
  • Family unit health history (parents and siblings)
  • Nicotine and marijuana use
  • History of substance corruption
  • Driving record (especially DUIs and moving violations)
  • Certain hobbies and activities (such as aviation, scuba diving and other risky hobbies)
  • Criminal history
  • Credit

How Much Term Life Insurance Exercise You Need?

A good term life insurance amount is generally ane that matches the debts or obligations you want to cover. Life insurance is often intended to pay a family'due south expenses that would have been paid by the person's salary.

If income replacement is your goal, you'll desire to know the approximate corporeality your family would demand to maintain your standard of living for the time period yous desire to cover.

How much life insurance do y'all need?

Answer simple questions in our 3 pace process

Life Insurance

How much annual income would your dependents need?

How long would your dependents need financial support?

Related: How Much Life Insurance Do I Demand?

Picking a Term Life Insurance Length

To choose the best duration for a term life insurance policy, consider the length of the debt or situation yous want to comprehend. For example, if you're buying term life to cover the years until your children are through college, and that's in ix years, you might pick 10-year term life insurance. If you merely bought a house and took on a 30-year mortgage, yous're likely looking at thirty-year term life.

Term life insurance is typically available in lengths of 5, 10, fifteen, 20, 25 and 30 years. Some companies offer longer terms of 35 and 40 years (such as Imprint Life and Protective).

The most common term life length purchased is xx years, says Steve Robinson, Vice President of Partnerships for Legal & Full general America, which owns Imprint Life.

If your family's financial needs stretch past the typical term life lengths, consider a permanent life insurance policy, such as universal life insurance.

Most mutual lengths of term life insurance

What Happens if You Outlive a Term Life Policy?

When your initial level term period ends (such as at the end of x, 20 years or 30 years), yous tin renew the policy at a higher rate each year. You won't receive a refund for your premiums paid (unless you purchased "return of premium" term life insurance).

It's a good idea to become quotes for a new policy earlier you pay the college renewal rate. Even though you're older and may be less healthy, you could still notice a better deal in a new policy.

Some folks decide they no longer need life insurance before they reach the end of the term and finish making payments. Before you go this route, make sure y'all truly no longer take the demand for life insurance. If you terminate a policy and your life circumstances change afterward, yous could regret not having kept the policy.

Choosing a Term Life Insurance Company

It'southward a good idea to compare life insurance quotes to start your life insurance shopping journey. You may be tempted to focus solely on cost when you're choosing an insurer. But the all-time term life insurance companies will offer benefits that give flexibility at a good price.

Coverage features to expect for include:

  • Are there living benefits? These allow you to admission your own death do good in cases of astringent illness. You tin use the money to pay for medical expenses, or anything else.
  • Is the policy guaranteed to exist renewable? This allows you to renew the policy (at a higher price) once the level term period runs out. It can exist useful if y'all reach the end of the level term menses and still need life insurance but have health issues.
  • Tin can y'all convert the term policy to a permanent policy? This allows you to switch to a permanent life insurance policy. But there's commonly a deadline for doing it, so make sure you know your time window for converting to a permanent policy.
  • Tin you modify the policy face amount? If your life insurance needs change in the future, tin you adjust your coverage amount? Commonly you can merely adjust down.

Other tips for ownership term life insurance

  • Laddering life insurance: If you lot take life insurance needs of different lengths, you tin can ladder life insurance policies to save money. For instance, you might buy a 30-year policy to cover the length of a mortgage and a twenty-year policy (or passenger on the 30-twelvemonth policy) to encompass the fourth dimension until children are out of college. This fashion you're non group all obligations into i long policy.
  • Temporary insurance: Yous often take the option to include a cheque for the outset premium payment with your application and lock in coverage from your awarding date forrard. It'southward common for an application to take a month or more than to process. This gives you lot coverage during the application process. Ask your agent about this "temporary coverage" before you submit the application.

What to Expect When Y'all Apply for Term Life Insurance

When you have a quote that you like and are set up to purchase a policy, y'all'll fill out an application. The life insurance agent will likely become over your application answers. Yous may be asked to sign releases, such as one for your medical records.

Once the awarding goes to the insurance company, you may exist asked to do a life insurance medical examination. This frequently includes height, weight, blood pressure level, blood and urine samples, and questions about your prescriptions and health to verify the information on the application.

Depending on your age and/or amount of insurance requested, a life insurer might too request an EKG or cognitive assessment.

Behind the scenes, the life insurance company will be doing its own research on you. This frequently includes:

  • Accessing a prescription drug database to run across your electric current and by prescriptions.
  • Requesting your medical records (if you signed a consent course).
  • Pulling your motor vehicle written report.
  • Accessing information from past applications for individual life and health insurance from MIB Group.
  • For high amounts of life insurance, such as $5 million and up, getting a third-party verified fiscal argument.

Term Life Insurance Alternatives

Term life insurance isn't the only blazon of life insurance. In that location are also multiple types of permanent life insurance policies.

Unlike term life insurance, permanent life policies concluding your life as long every bit you make your payments. So, beneficiaries are guaranteed a death do good with a permanent life policy. These policies additionally build cash value, which lets the policyholder tap into the policy during their lifetimes.

Here are different permanent life insurance policies:

Whole life insurance

Whole life insurance guarantees a death benefit as long as you lot make your payments. It also guarantees you a minimum charge per unit of return on the greenbacks value, level premiums and a guaranteed death benefit that won't subtract.

Universal life insurance

Universal life insurance policies offer lifelong coverage and oft build cash value, which grows tax-free. You may be able to accommodate your premium payments and the death benefit, within sure limits.

There are multiple types of universal life insurance policies:

  • Guaranteed universal life: The cheapest universal life policy typically, a guaranteed universal policy offers cash value, which tin be minimal. However, it doesn't offer flexibility to adjust premiums and death do good, which are establish in another universal life policies.
  • Indexed universal life: An indexed universal life insurance policy connects a policy's cash value to an index, such as the Southward&P 500. Yous tin can change premiums and the death benefit, inside certain limits.
  • Variable universal life: A variable universal life insurance policy'south cash value is tied to sub-accounts that tin include stocks and bonds. The success of the investment choices impacts the policy's cash value. Yous take the flexibility to make changes to premiums and death do good. A variable universal policy requires the policyholder to manage the investments and can result in gains or losses based on your choices.

Frequently Asked Questions (FAQs)

What tin can you do with a term life policy?

One of the peachy things nearly term life insurance is that information technology gives your beneficiaries fiscal flexibility. They can use the payout for any financial priority, whether it'southward paying routine living expenses or funding college tuition.

Life insurance types, such every bit credit life insurance and mortgage life insurance, give your family unit no flexibility because the life insurance payout goes to the lender or creditor, not beneficiaries y'all choose.

What are the benefits of term life insurance?

Term life insurance guarantees a death do good to your life insurance beneficiaries if y'all dice while coverage is in force. It'south also generally the cheapest blazon of life insurance.

If you lot want life insurance that can pay a decease benefit no matter how long you live, consider a permanent life insurance policy such as universal life insurance.

Can I cash out a term life insurance policy?

Term life insurance policies contain no cash value. It's ane of the reasons that term life is usually the least expensive way to purchase life insurance coverage.

If you want a policy that builds greenbacks value, consider universal life insurance.

What's the divergence between whole life and term life insurance?

The biggest difference betwixt term life vs. whole life insurance is the length of the policy and the cash value component. Term life insurance does not build greenbacks value and has level premiums only during the initial level term length, such as 20 years.

Whole life insurance has a greenbacks value component and lifelong coverage, equally long equally you pay the premiums. The premiums for whole life insurance don't change. Merely whole life is significantly more expensive than term life insurance.