Guide to Term Life Insurance

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Term life insurance is popular among individuals seeking affordable and straightforward coverage. This guide will explore different types of term life insurance policies, their benefits, and who they are best suited for.

What is Term Life Insurance?

Term life insurance is a type of life insurance policy that provides coverage for a specific period, or “term.” If the insured person passes away during this term, a death benefit is paid out to the beneficiaries. It’s straightforward, without the bells and whistles of other insurance types.

Example: Sarah buys a 20-year term life insurance policy. Her beneficiaries receive the death benefit if she passes away within those 20 years. If she outlives the term, the policy expires.

Common Types of Term Life Insurance

10-Year Term Life Insurance

  • Definition: Provides coverage for 10 years with fixed premiums.
  • Benefits: Ideal for short-term needs such as covering temporary debts or financial obligations.
  • Rates: Lower premiums due to the shorter term. For example, a healthy 30-year-old might pay around $15/month for a $250,000 policy.
  • Policy Features: Fixed premiums, tax-free death benefit, and options for renewability or conversion to permanent insurance.

20-Year Term Life Insurance

  • Definition: Provides coverage for 20 years with fixed premiums.
  • Benefits: Balances affordability with longer coverage, suitable for financial responsibilities like mortgages or children’s education.
  • Rates: Premiums vary by age and health, with a healthy 30-year-old typically paying around $15/month for a $250,000 policy.
  • Policy Features: Fixed premiums, tax-free death benefit, and options for renewability and convertibility.

30-Year Term Life Insurance

  • Definition: Provides coverage for 30 years with fixed premiums.
  • Benefits: Ideal for long-term financial commitments such as mortgage payments and providing financial security for dependents.
  • Rates: Higher premiums due to the extended coverage period. A healthy 30-year-old might pay between $20-$30/month for $250,000 coverage.
  • Target Audience: Young families, couples with long-term obligations, and individuals in their 30s or 40s.

40-Year Term Life Insurance

  • Definition: Provides coverage for 40 years with fixed premiums.
  • Benefits: Ideal for very long-term financial commitments and ensuring prolonged financial security for dependents.
  • Rates: Higher premiums due to the extended coverage period. A healthy 30-year-old might pay between $30-$40/month for $250,000 coverage.
  • Target Audience: Individuals seeking long-term security, including those with extended financial responsibilities and young families planning far into the future.

Pros and Cons of Term Life Insurance

Pros:

  • Affordability: Generally lower premiums compared to whole life insurance.
  • Simplicity: Easy to understand with straightforward terms.
  • Flexibility: Various term lengths to match your specific needs.

Cons:

  • No Cash Value: Unlike whole life insurance, term policies do not build cash value.
  • Temporary Coverage: Coverage ends after the term unless renewed at higher premiums.

Top 3 Insurance Companies For Term Life Insurance

  • Banner Life: They are an A+ Rated company that consistently has some of the best rates in the industry for term life insurance. They also have a guaranteed issue child rider that is approved in most states to get coverage for your child.
  • Pacific Life: Another A+-rated company with very competitive rates. Pacific Life stands out because after the term ends, you can convert to a guaranteed universal life policy; most companies only offer a current assumption policy.
  • Corebridge is an A-rated company that offers competitive rates. It is unique in that it offers term periods from 10YR, as well as 15YR, 16YR, 17YR, etc., up to 35YRS. This is unique because most companies only offer 5YR increments on a term policy. This allows the insured to tailor their term policy to meet a specific period of time, such as having 18 years left on a mortgage.
Term Life Insurance Meaning

Compare Rates With Other Companies

Before buying a term life insurance policy, use a calculator to compare costs and benefits. This tool considers your age, health, and desired coverage amount, providing premium estimates and policy value over time. It also allows you to compare term life with other types like universal and whole life insurance. This comparison highlights the strengths and weaknesses of each option, helping you choose the best policy for your needs.

Other Types of Term Life Insurance:

  • Level Premium Term Life Insurance: Offers a fixed death benefit and consistent premiums throughout the term, providing predictable costs and coverage.
  • Decreasing Term Life Insurance: Features a declining death benefit over time, often used for mortgage protection to match decreasing loan balances.
  • Yearly Renewable Term: Refunds all paid premiums if the insured outlives the term, combining life insurance protection with a savings element.
  • Return of Premium Term Life Insurance: Refunds the premium payments if the insured person outlives the term.
  • Mortgage Protection Insurance: Refunds all paid premiums if the insured outlives the term, combining life insurance protection with a savings element.
Whats Term Life Insurance Mean

What We Recommend

When selecting a term life insurance policy, consider your financial responsibilities, long-term goals, and budget. Term life insurance offers affordable and flexible options to protect your loved ones during critical periods.

For personalized advice or to get a quote, visit The Annuity Expert.

Term Life Insurance Assistance

Contact us if you need help purchasing a term life insurance policy. The service is free of charge.

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Questions From Our Readers

What happens when your term insurance expires?

In most cases, when your term life insurance policy expires, you essentially become uninsured. If something were to happen to you after the policy term, your beneficiaries would not receive any death benefit. The coverage ends, and you’re no longer paying premiums.

Do you get money back after it has expired?

Standard-term life insurance policies do not offer a return of premiums at the end of the term. So, if you outlive your term life insurance policy, you generally do not get any money back unless you have a return of premium (ROP) term life insurance policy.

What happens after 20-year term life insurance?

After a 20-year term life insurance policy expires, the policyholder can either renew the coverage for a new term, convert to permanent insurance, or let the policy lapse without coverage or death benefit.

What happens if I live longer than my term life insurance?

If you live longer than your term life insurance, the policy will expire, and you will not receive a death benefit. Instead, the policyholder must purchase a new policy or opt for a different form of coverage.

Does term life insurance have cash value?

No, term life insurance policies do not have cash value. The premiums paid towards a term life insurance policy are solely used to provide death benefit coverage. Once the policy term ends, the coverage ends, and there is no cash value component. Term life insurance is designed to provide affordable life insurance coverage for a specific period, and the premiums are significantly lower than those of permanent life insurance policies.

What happens at the end of term life insurance?

When your term life insurance policy ends, you have a few different options. You can renew your policy, convert your policy, or let your policy lapse.

What is level premium term life insurance?

Level premium term life insurance is a type of life insurance policy where the premium payments remain consistent throughout the term. This allows policyholders to budget for their insurance premiums more quickly, as there won’t be any unexpected increases in their payment amounts. As the name suggests, it covers a specified term, such as 10, 20, or 30 years.

Which component increases in the increasing term insurance?

The death benefit is the main component of increasing term life insurance policy. As you age, the death benefit will increase, providing your loved ones with more financial protection in the event of your passing.

How much does life insurance cost for a 50-year-old male?

For a healthy 50-year-old man wanting a $500,000 policy, the average monthly premium for a 20-year term policy is $79.

How much does life insurance cost for a 50-year-old female?

For a healthy 50-year-old woman wanting a $500,000 policy, the average monthly premium for a 20-year term policy is $63.

How do I sell my term life insurance?

To sell your term life insurance policy, you can consider a life settlement or viatical settlement company. These companies purchase life insurance policies from policyholders for a lump sum. Research reputable companies, gather your policy documents, and compare offers. Remember that selling your policy may have tax implications and affect your beneficiaries.

Can you borrow against term life insurance?

No, you cannot borrow against term life insurance. Term policies do not accumulate cash value, which is necessary for taking out a loan.

Can a 60-year-old get term life insurance?

Yes, a 60-year-old can get term life insurance. Many insurers offer policies to older applicants, though premiums will be higher compared to younger individuals.

When does term life insurance end?

Term life insurance ends when the specified term (e.g., 10, 20, or 30 years) expires. At that point, coverage ceases unless renewed or converted to a permanent policy.

Does term life insurance have a waiting period?

Typically, term life insurance does not have a waiting period. Coverage usually begins immediately after policy approval and the first premium payment.

How much term life insurance do I need?

The amount of term life insurance you need depends on factors like your income, debts, future expenses, and financial goals. A common rule is to get coverage equal to 10-12 times your annual income.

Do term life insurance premiums increase each year?

Term life insurance premiums are usually fixed for the duration of the term. However, with yearly renewable term policies, premiums increase annually.

Why is term life insurance the best option for a young adult?

Term life insurance is the best option for a young adult because it offers affordable premiums, straightforward coverage, and financial protection during the years when they might have significant debts or dependents.

Who offers the best-priced term life insurance?

Banner Life is often recognized for offering competitively priced term life insurance, providing affordable rates and comprehensive coverage options.

Why is life insurance so cheap?

Life insurance, especially term life, is cheaper because it offers coverage for a limited period without accumulating cash value. Premiums are based on the low risk of the insured passing away during the term, making it an affordable option.

When should I stop buying term life insurance?

You should consider stopping term life insurance when your financial obligations decrease, such as when your mortgage is paid off, your children are financially independent, or you have sufficient savings and investments for your dependents.

Can you extend term life insurance?

Yes, you can extend term life insurance by renewing it at the end of the term or converting it to a permanent policy, though premiums may increase.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

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

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