Term Life Insurance is temporary life insurance, designed to provide coverage for a set period of time. The most common durations (terms) are 10, 15, 20, 25, 30 and 35 years. Like auto insurance or homeowners insurance it provides protection for you and your family in the event of an accident or unplanned death. Over the course of the term, you have fixed premiums that remain unchanged for the duration of the term. At the end of the term, your insurance company or carrier can renew, change, or cancel your policy.
Most life insurance companies will continue to renew at the end of the term, but the premiums typically skyrocket. As a result, most people end up dropping the coverage at that point. The exception to this is when the insured is very sick and no longer capable of qualifying for a new life insurance policy.
Like all life insurance, term life insurance companies will pay the face value of your policy tax-free to your designated beneficiary (or beneficiaries) in the event of your untimely death.
Features of Term Life Insurance
- Affordable — term costs less than permanent insurance, at least during the initial level term period
- It turns pennies into dollars at the exact moment those dollars are needed most (this is a benefit of ALL life insurance, not just term!)
- Easy to understand and provides great value for your money, coverage is temporary (10 up to 35 years)
- Serves as income replacement if you (as the breadwinner) die, giving your family tax-free dollars to use for college tuition, weddings, mortgage payments, bills and other expenses
- Allows a policyholder to buy riders (add-ons) that attach to your term policy (if basic term life insurance doesn’t cover all your needs)
In most cases, you can convert your term policy into a permanent one without a medical exam. Make sure to find out how long that option is available to you. If there’s any possibility you’ll want to extend your coverage beyond the term, conversion could be extremely valuable for you – especially if your health ever declines.
Watch the video below to learn what to look for when you’re thinking about buying life insurance.
Types of Term Life Insurance
It’s not really “one size fits” all when it comes to term life insurance. You have some options. What type is best for you? Use our calculator and then have one of our experienced and licensed advisors walk you through the process.
Guaranteed Level Term Life Insurance
This is your garden variety term life insurance. It’s easy to understand and a smart choice for many. You pay a level premium for a set amount of time (called the term period), typically 10, 15, 20 or 30 years. The policy doesn’t end at the end of that term, but the premiums increase dramatically. As a result, it may become difficult or impossible to maintain the coverage.
As long as the policy is in force when you die, your beneficiaries receive the death benefit. Life insurance benefits are federal income tax free.
20 Year Term Life Insurance Rates
Sample yearly premiums for 20 year Guaranteed Level Term insurance.
30 Year Term Life Insurance Rates
Sample yearly premiums for 30 year Guaranteed Level Term insurance.
*All prices are based on a preferred plus male (Aug 2017)
Return of Premium Life Insurance
A return of premium (ROP) life insurance policy returns 100% of your paid premiums to you (income tax-free!) if you’re alive at the end of the term.
Yes, you read that correctly … a 100% refund of your premiums!
For example, a $1,000,000 policy with a 30-year term bought for $1,496 a year would generate a $44,880 refund to the policy owner at the end of the 30th year. Not a bad way to head into retirement!
20 Year Return of Premium Life Insurance Rates
Sample yearly premiums for 20-year Return of Premium Term insurance.
30 Year Return of Premium Life Insurance Rates
Sample yearly premiums for 30-year Return of Premium Term insurance.
*All prices are based on a preferred plus male (Aug 2017)
Annually Renewable Term Life Insurance
With this type of term insurance, premiums start low and rise each year as you get older. The jump in annual cost is bigger every year. For example, the difference in premium from age 50 to 51 is greater than the difference from 30 to 31.
Nowadays, annually renewable term (ART) life insurance is rarely sold, but may work in rare instances for those with very short-term insurance needs.
Decreasing Term Life Insurance
If your need for life insurance is going to drop as you age and as certain liabilities in your life no longer exist, decreasing term insurance might be for you. The death benefit will decrease at a predetermined rate over the life of the policy, but premiums usually remain level throughout the term (which can range anywhere from one to 30 years). This means the cost per thousand dollars of coverage goes up every year.
Sometimes it is also marketed as “mortgage life insurance.”
Because the coverage is generally not competitively priced, we don’t sell it at AccuQuote.
No Medical Exam Term Life Insurance
The underwriting process for term no medical exam insurance is more like traditional life insurance but, without the exam. A phone interview is still required and medical records will still need to be reviewed. This type of coverage is generally limited to policies of under $500,000 and is slightly more expensive than traditional term life insurance. The entire process is a little faster than typical but still takes 2-4 weeks.
How much life Insurance do I need?
How much insurance you need is a function of your unique individual situation. As a result, following a “rule of thumb” is not necessarily the most responsible advice that we could give you. However, there are some tricks that we have learned over the years.
If you’re a breadwinner, you’re going to want to start with your income as replacing your income is the primary goal when determining the right amount of coverage for your family. If you’re not a breadwinner, start with a question. “How much money would it take to replace what I contribute to the family?” Next, ask yourself how many years you would like to replace your financial contributions to the family 10, 20, 30 years? It’s up to you. Lastly, simply multiply the amount of money you’d like to replace per year, by the number of years you would like to provide support. You will quickly find that replacing the economic value of your life typically requires a lot of money! And we haven’t even covered wage increases, inflation, or changes to your current lifestyle.
Next, you’ll simply need to weigh your family’s needs with a policy that is affordable. After all, if it’s not affordable, you won’t end up keeping it! And holding on to your life insurance policy is rule number one!
Need more help? We also have a Life Insurance Calculator that can assist you in calculating the policy amount that fits your needs.
Term Life Insurance is cheap!
Term Life Insurance is the cheapest type of life insurance. Because it’s temporary, and not intended to last a lifetime. As a result, it’s also the least risky for the insurance companies which allows them to offer it at the lowest possible rates. Let’s look at our sample case.
A 40-year old non-smoking male in excellent health can buy a 20-year, $1,500,000 policy for about $77 per month or $924 per year, for a total cost of $18,480 over 20 years. If he dies with the policy in force, his beneficiaries will receive the $1,500,000 federal income tax-free.
If the same 40-year old wanted his coverage to last to age 70, he could get a 30-year, $1,500,000 policy for the about $145 per month or $1,740 per year. This policy would have a total cost of $52,000, over 30 years.
If, after your term policy ends, and you still want protection, you might want to consider a small whole life or a final expenses policy. This would give you coverage needed for the rest of your life.
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