Term Life Insurance
Term life insurance provides coverage for a specific period of time. A term life insurance policy issues a payment to a beneficiary only if the policyholder dies while the policy is in effect and if they have paid their premiums on time and in full.
Term life insurance policies are commonly contracted for a term of 10 to 30 years, although shorter or longer terms can be available with some policies. If the policyholder outlives the length of the contract, the policy expires and no payout is made.
Certain term life insurance policies may be converted to a whole life insurance policy at the end of the term. Some term life insurance policy may be able to be renewed at the end of the term.
Unlike permanent life insurance, term life insurance policies do not accrue a cash value. For this reason — and the fact that term policies expire — term life insurance rates are generally more affordable than certain permanent life insurance policies.
The earlier you purchase a term life insurance policy and the healthier you are, the more affordable the premiums will likely be.
This chart helps to illustrate some of the primary differences between term life insurance and permanent life insurance policies.
| Term Life Insurance | Permanent Life Insurance | |
|---|---|---|
| Policy Length | Common term lengths are 10, 20, and 30 years1 | The rest of your life as long as premiums are paid |
| Cash Value | NO | YES |
| Premium Structure | Remain level or increase over time, depending on your policy | Remain level through the life of the policy, or may be adjusted depending on the policy |
| Additional Considerations | Doesn't accumulate cash value but is typically less expensive than Permanent Life Insurance | Monthy premiums are typically more expensive since the policy can accumulate cash value and is priced to keep over a long period of time. |
1Some carriers may allow for different term lengths, as low as 5 years or as high as 40 years, for example.
This is not a comprehensive overview of all relevant features and benefits. Carefully review all of the material details about these products before making a decision.
Who should purchase term life insurance?
A term life insurance policy can be beneficial for several types of people, including:
- Parents of young children
If you die while your children are still young, they may not be able to maintain the same quality of life that you were able to provide for them. Your children may not be able to afford college, have their dream wedding or experience other life events that they may otherwise have been able to do with the assistance of your income.
A term life insurance policy can help provide your children with a financial safety net, should you pass away before they are grown up and financially independent. - People with co-signed debt
If you have any co-signed debt, such as car payments, a mortgage or bank loans, your surviving co-signer will be responsible for that debt if you die before it is paid off. A term life insurance policy can provide help protection for your co-signer for the term of that debt, or until it is paid off. - Homeowners
A term life insurance policy payout can be used to help make mortgage payments if you pass away before the mortgage balance is fully paid off. The payout from the policy can allow your surviving family members to continue living in the home despite the loss of your income.
Or if you choose to leave the property to someone else in your will, listing that person as a beneficiary on your term life insurance policy can help them make the mortgage payments that will come with owning the home. - Primary household income sources
A 30-year term life insurance policy can help cover the working years of a household “breadwinner” (or primary household source of income), providing income replacement in the event of their death. - Stay-at-home parent
If a stay-at-home parent were to die, the services they performed in the home might need to be hired out through home cleaners and babysitters and would no longer be “free.” Things like child care and cleaning can become costly for a single parent. A term life insurance policy payout can help cover some of these expenses. - Divorced parents
Divorced parents who are responsible for child support payments can help protect their child’s future financial security by purchasing a term life insurance policy. The policy payout could help replace the child support payments if the parent should pass away before their child is financially independent.
Life insurance policy term lengths
One of the benefits of term life insurance is the flexibility that it can offer. When you buy a term life insurance policy, you have the ability to choose how much insurance you want, and also how long you want the policy to be in effect.
A general rule of thumb is to choose a policy term that is long enough to help support your financial dependents until they can financially support themselves.
If you have a newborn at home, you may want to use a 20-year policy to help secure financial protection until your child is out of high school. If you just bought a home with a 30-year mortgage, you might opt for a 30-year term life insurance policy that can be in force until your house is paid off. If you just graduated from college with a co-signed student loan, you may go for a 10-year policy that will last until the loan can be paid off.
We all have different financial needs, and a term life insurance policy can offer the flexibility to address them.
Why choose term life insurance?
Is term life insurance right for you? There can be a few advantages to this type of policy, depending on your situation.
- For starters, term life insurance is generally less expensive than other types of policies, such as permanent life insurance.
- Secondly, term life insurance can offer greater flexibility than other types of policies and can allow you to customize the policy length and coverage amount according to your needs. You’ll only pay for what you need and nothing you don’t.
- Finally, term life insurance can be more straightforward than other types of policies and tends to be easier for policyholders to understand.
Speak to a licensed insurance agent to see if term life insurance is right for you.
