What Is Term Life Insurance?

When it comes to uncomfortable conversations, there's usually one of two subjects topping people's lists: death or money. Combine the two and that's what makes term life insurance such a sticky conversation topic.

However, if you want to protect your family financially and make sure they can maintain the same lifestyle if you die, you need life insurance. And for most people, term life insurance is the best kind to buy.

Keep reading to understand how term life insurance works, how much it costs, and where to get it.

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  • Term life insurance pays a specified death benefit if the insured person passes away while the policy is in place.
  • Most term policies range between 10 and 30 years.
  • Term life is generally inexpensive, especially if you are young and healthy.

What does term life insurance mean?

Term life insurance is coverage that will pay out a certain amount, known as the death benefit, to your beneficiaries if you die while the policy is active.

Term life insurance coverage lasts for a set period of time. When the term expires, the life insurance policy ends. If you die while the policy is intact, then your named beneficiaries will receive the death benefit. However, if you die after the period expires, then your beneficiaries will not receive anything.

Terms are usually sold in 10-year increments ranging from 10 to 30 years. The most popular are 20- and 30-year terms.

A term life insurance policy normally has the same premium, or monthly costs, for the entire term. That amount remains the same even if your health changes while the policy is in effect.
Life insurance premiums differ partially by health status and have several different tiers. In general, the healthier you are, the less you will pay per month.

To assess your health, you must provide a comprehensive medical history when applying for life insurance. Sometimes, this is all you need for approval.

Most of the time though, you must undergo a basic medical exam to qualify for term life insurance. The medical exam will usually include blood work, a urine test, and a blood pressure reading. The insurance company may also request paperwork from your doctor to verify your health or ask any follow-up questions.

Related: Do you need life insurance

What is group-term life insurance?

A group-term life insurance policy refers to a policy with a cohort or group of individuals, usually based on your employer.
Most companies offer term life insurance as a free benefit, and they usually have a death benefit equal to a year's salary. You may also have the option to purchase additional coverage through your employer, which can be cheaper than buying it on your own.

Inclusion in a group term life insurance policy usually requires you to remain with the group, though. If you quit your job or are laid off, then your policy will likely be canceled.
Even if you have life insurance through work, you should still have your own policy.

What is the difference between term and permanent life insurance?

While a term life policy only lasts for a certain amount of time, permanent life insurance (a.k.a. whole life insurance) can last your entire life. If you make your whole life insurance premiums, then your beneficiaries will receive a death benefit when you die.

Whole-life policies also usually have a cash value that you can access while you're still alive. Some consumers will use this as an emergency stash. Also, just like term life, whole-life payouts are not taxable.

The catch? Whole life insurance is much more expensive than term life. For example, a 30-year-old woman with a $500,000 policy could spend around $25 per month on a term life policy. A $500,000 whole-life policy, on the other hand, might cost her over $400 per month. That's a difference of almost $4,700 in premiums per year.

It’s typically considered better financial planning to invest that additional $375 per month, rather than put it into a whole life policy.

Here's more about the differences between term and permanent life insurance.

How much does term life insurance cost?

A premium will differ depending on your age, gender, health status, the term length, and the death benefit amount. Men usually pay more expensive premiums than women. According to PolicyGenius data, men pay up to 24% more for life insurance than women.

For example, a 35-year-old healthy man might pay $20 a month for a 20-year term with a $500,000 death benefit. A 35-year-old healthy woman, on the other hand, could pay $18 for the same coverage.

Those in poor health will pay more in monthly premiums than those with excellent health. Having a genetic predisposition to a disease may also increase your premiums, even if you are not currently sick.

The younger you are when you purchase life insurance, the less you will pay in monthly premiums. If you buy a policy at age 30, you will pay less than if you wait until you're 35. Also, the longer you wait, the greater the chance that you'll develop a health condition that will also increase your monthly premium.

In rare cases, you may not be able to buy a life insurance policy if you have an upcoming surgery scheduled or if you have already been diagnosed with a chronic condition or a disease like cancer.

Term Life Insurance Riders

A rider is an add-on that you can purchase at an additional cost on top of your life insurance policy. You can usually only add a rider before you have purchased a policy, not after.
Here are the most common types of term life riders:

Return of Premium Rider

When you have a term life policy, the money you pay in premiums will be lost if you die after the policy expires. But, you can purchase a return of premium rider, which means the premium amount will be given back to you once the policy ends. Premiums may increase substantially if you add this rider.

Guaranteed Renewability Rider

When the term life policy ends, you can buy a new policy from the same provider or a new company. However, your premiums will be significantly more expensive because you'll be much older. Also, you may be denied a policy because of your health status. This rider will guarantee that you'll be approved for a new term life policy.

Accidental Death Rider

If you die because of an accident, this rider will increase the death benefit payout. But, if you pass away from natural causes, you will not receive any extra funds. In some cases, this rider will double the total death benefit. However, this depends on the specific policy.

Accelerated Death Benefit

If you are diagnosed with a terminal illness while the policy is active, this rider can let you access part of the death benefit before you pass away. You can use the funds to pay for medical needs or basic living expenses.

Related: How does life insurance work?

Couple signing term life insurance form.  Guide to different term life insurance.

FAQs

What is 10-year term life insurance?

A 10-year term life insurance policy will last for 10 years. As long as you pay the monthly premium for 10 years, your policy will remain active during this period.

What is level term life insurance?

With a level-term life insurance policy, both the monthly premium and the death benefit will remain the same for the entire policy term. Most term life insurance policies are level-term.

What is decreasing term life insurance?

Unlike a level term life insurance policy, decreasing term life insurance has a death benefit that is reduced as time goes on. The monthly premium will also decrease. Consumers interested in decreasing term life coverage should verify that their life insurance needs will go down as they get older, not increase.
It’s common to use this type of policy to coincide with their mortgage payoff. The benefit will decrease over time as they also pay down their mortgage. That way, if they die unexpectedly their spouse will be able to pay off the house.

What is a life insurance ladder?

A life insurance ladder means buying two or more policies and staggering them so you receive the ideal amount of coverage without paying unnecessary premiums.
For example, let's say you have 30 years until you retire, so you want to buy a 30-year policy so your spouse continues to have income if you pass away. But, you only have 20 years until your kids are out of the house, and you no longer need to cover their expenses. In this case, you could purchase a hefty 20-year policy and a smaller 30-year policy instead of buying a single sizable 30-year policy.
Using a life insurance ladder system could save you thousands in total premiums while ensuring that you have the right amount of coverage at every life stage.

How much life insurance should I buy?

How much coverage you need to buy depends on your current income, household expenses, spouse's income, total household debt, and many other factors.
One basic rule says to multiply your income times 10. You can also sit down and determine how much money your spouse and kids would need to live off of if you passed away. Remember, it's often better to choose a higher death benefit than a lower one. If you skimp on life insurance, your family's quality of life may suffer if you pass away.

How do I choose a life insurance company?

AM Best rates life insurance companies, ranking them from A+ to D. Generally, you should try to find a life insurance provider with an A rating or higher.
While you can buy life insurance from your car or homeowners insurance provider, make sure to shop around with at least three carriers to get the best quote. Online life insurance brokers, like PolicyGenius, can help you compare multiple companies at once so you can find a good quote without having to complete several different forms.

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I'm an award-winning lawyer and personal finance expert featured in Inc. Magazine, CNBC, the Today Show, Business Insider and more. My mission is to make personal finance accessible for everyone. As the largest financial influencer in the world, I'm connected to a community of over 20 million followers across TikTok, Instagram, YouTube, Facebook and Twitter. I'm also the host of the podcast Erika Taught Me. You might recognize me from my viral tagline, "I read the fine print so you don't have to!"

I'm a graduate of Georgetown Law, where I founded the Georgetown Law Entrepreneurship Club, and the University of Notre Dame. I discovered my passion for personal finance after realizing I was drowning in over $200,000 of student debt and needed to take action-ultimately paying off my student loans in under 2 years. I then spent years as a corporate lawyer representing Fortune 500 companies, but I quit because I realized I wanted to have an impact; I wanted to help real people and teach them that you can create a financial future for yourself.

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Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.

Advertiser Disclosure

Our aim is to help you make financial decisions with confidence through our objective article content and reviews. Erika.com is part of an affiliate sales network and receives compensation for sending traffic to partner sites, such as MileValue.com. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers. This in no way affects our recommendations or article content.