What Is Term Life Insurance and How Does It Work?

Shawn Plummer

CEO, The Annuity Expert

Term life insurance is a life insurance policy that provides coverage for a specific period of time, or “term.” This type of policy is typically cheaper than permanent life insurance policies, and it is a good option for people who want coverage for a limited period. This guide will discuss what term insurance is and how it works. We will also provide tips on choosing the right policy for your needs so you can protect your family’s financial future.

What is Term Life Insurance?

Term life insurance is temporary life insurance that will pay beneficiaries a specified amount of money if they die within a specific term. If the policy owner doesn’t die during the term, they can either renew the policy, convert it to a permanent life policy, or let the policy end. Term policies are sometimes referred to as “pure life insurance.”

Term policies are the most popular type of life insurance available, offering a monthly premium and guaranteed death benefit. It is the most straightforward life insurance for those who need it. It is also typically more affordable than any other option because it does not include a savings component or investment return within the policy.

Term length ranges between 10 to 40 years. The policy expires after the term is completed. Policies are backed by the claims-paying ability of the issuing insurance company. (NAIC)

Most people shopping for life insurance need at least a term policy. This type of life insurance lasts for a certain number of years. It is affordable and easy to understand. You pay premiums every month, and if you die during the term, the policy pays a lump sum of money to your beneficiary. If you live past the term, then the life insurance expires.

Helpful Tip: Use our free tool to shop and compare term life insurance quotes, then apply for coverage in under ten minutes.

How Term Life Insurance Works

Term policies are designed to temporarily cover you for a set amount of time, usually 20 to 40 years. This life insurance works similarly to auto insurance, but instead of a car, your insuring a human life. You pay a monthly premium, and if you die during the policy term, the insured’s beneficiaries receive a death benefit.

The insurer determines the level premiums for a term policy based on the face value (the payout amount) and your age, gender, and health. A medical examination may be necessary for certain situations. For example, the insurance company may investigate your driving record, prescription drug history, smoking history, profession, hobbies, and family history.

If you die during the policy term, the term life insurance pays the policy’s face value to your beneficiaries. This cash benefit is not taxable and may be used by beneficiaries to replace everyday expenses and settle outstanding debts, including funeral costs, medical bills, or mortgage debt. However, there is no payout if you don’t die during the policy term. You may be able to renew a term policy at its expiration. Still, the premiums will be recalculated for your age at renewal and typically are significantly more expensive. Term policies may also be converted to a permanent policy too.

Term Insurance Example

The cheapest term life policy is usually the shortest-term coverage available since it provides a benefit for a short time and gives a death payment. A healthy 35-year-old female non-smoker can, for example, purchase a 20-year level-premium policy with a $250,000 face value for between $12 and $24 per month. If she dies within the 20-year term, the policy will pay her beneficiaries $250,000.

If the same female dies after she turns 55, her beneficiary will receive no benefit when the policy has expired. If she renews the policy, the premiums will be higher than her initial policy because they will be based on her age of 55 instead of 35.

Policy Types

Term life policies are available in a variety of forms.

  • Renewable Term policies: A renewable policy can be renewed at the end of the period without proof of insurability. Yearly renewable term cover may limit the number of renewals or an age beyond which renewals are not allowed. The renewal premium will be determined based on the insured’s current age.
  • Nonrenewable Term policies: A nonrenewable term policy lasts for a predetermined period of time and may not be extended after the expiration date.
  • Convertible Term: A convertible term life insurance policy allows a customer to switch or convert the temporary coverage for permanent insurance without producing proof of insurability. The term must be ended before the expiration date. The premium is calculated based on the current age when a policy is converted to permanent coverage.
  • Reentry Term: A reentry term policy allows the insured to submit evidence of insurability after the term and seek reduced premium rates than those offered for a renewable term policy.
  • Level Term: A level term policy is a life insurance policy in which the face amount doesn’t change throughout the coverage. The premiums may rise yearly or stay stable for the entire period.
  • Decreasing Term: A decreasing term policy begins with a large face amount and decreases each year. This policy is ideal for situations that decline over time, such as the outstanding balance on a mortgage.
  • Increasing Term: Increasing term begins with a small amount of coverage. The face value increases over time. The increasing term may be added as supplemental insurance to another policy. This will give you an extra death benefit equal to your paid premiums.
  • Interim Term: When a person needs immediate protection and is considering obtaining a permanent insurance policy right away, an interim term policy may cover the time until permanent protection begins. An interim term plan converts automatically after a specific length of time. The length of time covered by this coverage varies, but it generally lasts approximately 11 months.
  • Return Of Premium Term: All premiums paid into the policy are refunded if you live beyond your policy term. If you cancel your policy early, you may receive a portion of the premiums paid.
  • Mortgage Redemption Insurance: If you die before your mortgage is paid off, the mortgage redemption policy allows you to pay it off. The insurance will be adequate to cover the outstanding mortgage.
  • Deposit Term: A deposit term policy has a higher premium for the first year and decreases in subsequent years.
  • Group Life Insurance: Employer-provided group life insurance is term insurance that covers employees.

Skip The Medical Exam

If you decide to buy term life insurance, a medical exam is not required for all term plans. This life insurance option provides flexibility benefiting healthy individuals only, and they can obtain same-day coverage by taking advantage of it. Apply for coverage in less than 10 minutes without an insurance agent.

Skip The Exam, Get Coverage Instantly.

Apply for affordable life insurance with no medical exams. Then, apply for same-day coverage in less than 10 minutes. A+ rated companies. Healthy applicants only.

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Term Life Insurance Rates

These are sample monthly life insurance term rates utilizing the most popular term, 20 years. The rates are based on age, gender, coverage amount, Preferred status, and non-tobacco consumers.


After The Term Expires

What happens when a term life insurance policy expires? You have three options:

  • Do nothing, and continue life without coverage.
  • Purchase another insurance policy. Rates will be based on your age and medical condition when the old policy expires, often more expensive.
  • Convert the level term policy into a permanent life insurance policy. Universal life insurance and whole life insurance premiums are going to be more expensive.

Pros and Cons


  • Most affordable type of life insurance plan.
  • Simple to understand compared to other life insurance options.
  • Last for a fixed period of time, set by you.
  • The premium payments do not change during the term.


  • The policy is temporary and expires after the term.
  • No retirement savings component like the guaranteed cash value in a permanent life insurance policy.
  • No refunds after the term have expired.
  • No accidental death benefit.

Are Premiums Tax Deductible?

Can you write off term life insurance? Unfortunately, your life insurance premiums are not tax-deductible because they are considered a “personal expense” by the IRS. Therefore, you cannot deduct life insurance payments from your taxes if you buy it for yourself. The only times when this is possible are when you pay for someone else’s policy.

Best Term Life Insurance Policies

Find The Best Term Life Insurance Coverage At The Cheapest Cost!

Compare term life insurance quotes from 25 companies in seconds. Then, apply for coverage in less than 10 minutes.


 If you are looking for a life insurance policy that is affordable and simple to understand, term life insurance may be the right option. Request a quote below to find out how much coverage you can get for a fixed period of time.

Term Life Insurance

Need Help Getting Coverage?

If you have a preexisting medical condition and want to buy life insurance, you will need help from an expert. This person can help ensure that you get coverage so that you don’t get declined.

Warning: Applying for life insurance without a medical exam can be risky. If you get declined coverage, it could be at least two years before you can get any life insurance.

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Have You Been Declined Life Insurance Coverage Before?

Frequently Asked Questions

How much does term life insurance cost?

Term life insurance premiums start at $11 per month and stay the same for the entire time you have the policy.

What is the difference between term and whole life?

Term life insurance provides coverage for a set period of time, typically between 10 and 40 years. Whole life insurance lasts your entire life and comes with a cash value component that grows over time.

Why is term life insurance usually the least expensive?

Term life insurance is the least expensive type of life insurance because it is only a death benefit and insures the individual for a limited number of years. There is no cash value accumulation. The policy’s death benefit is paid only if the policyholder dies during the term of coverage.

Is term life insurance worth buying?

Term life insurance is much more cost-effective than permanent life insurance. However, until you pass away, term life insurance has no cash value.

What term is best?

40-year term life insurance is the most extended term life insurance policy available to date. So you can feel safe knowing that you and your loved ones are covered with term life insurance for 40 years.

At what age should you stop term life insurance?

There is no set age to terminate your term coverage, but some people do so when they are older to save money and don’t require a death benefit for their children, spouse, or partner.

Does term insurance have cash value?

Term life policies do not have a savings component, unlike permanent life insurance products.

What are the best term life insurance ratings?

The best term life insurance ratings come from independent rating organizations like A.M. Best, Moody’s, and Standard & Poors. These organizations rate insurance companies based on their financial stability and ability to pay claims. “A-” to “A++” is the best ratings.

Which of the following best describes term life insurance?

The insured pays a premium for a specified number of years.

Which of the following best describes the fixed-period settlement option?

Under the fixed period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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