What is Term Life Insurance? – A Comprehensive Guide

Term life insurance provides coverage for a set time period: typically 10, 15, 20, or 30 years. It’s affordable and simple — it may make sense if you only want protection for the years you plan to support loved ones financially. If you pass away during the term, the death benefit of a term policy can be used however your beneficiaries choose.

Benefits of Term Life Insurance

• Lower costs: Term life insurance only covers you for a set time, resulting in a lower rate than whole life insurance policies.
• More coverage: Because of the low cost of buying term life insurance, you can afford a larger death benefit and greater security for your loved ones. This makes it ideal for young families.
• Tax-free payout: The payout your beneficiaries claim from a life insurance policy typically won’t count as taxable income.
• Guaranteed protection and premium: With a term policy, your death benefit and premium are fixed and guaranteed.

Types of Term Life Insurance

• Fixed term life insurance: The most common form of term life, fixed term life insurance policies have a fixed coverage amount and premium payment.
• Decreasing term life insurance: A decreasing term life policy features a coverage amount and premium that decreases over time, meant for those who anticipate needing less coverage toward the end of their policy’s term.
• One-year, short-term life insurance: A one-year, short-term life policy is a highly affordable option for those with temporary coverage needs, such as those between jobs or who aren’t ready for a long-term policy.
• Simplified issue term life insurance: A simplified issue term life policy doesn’t require a medical exam, providing a faster way to get coverage compared to traditional term life insurance.

READ: 10 Benefits of Getting a Life Insurance and why it matters.

Comparing Term and Whole Life Insurance

Term and whole life insurance are both common life insurance options, but which is right for you? Here’s a quick comparison showing how term life differs from whole life insurance:

If you’re looking for affordable coverage that you only need for a set period of time, then term life insurance may be the right fit for you. Learn more about the differences between term life and whole life insurance.

Common questions about Term Life Insurance

• Which term length is right for me? That depends on your budget and how long you’ll be providing financial support to your loved ones. For example, if you have a 30-year mortgage, then you may consider buying a 30-year term life policy.
• Can you change your coverage amount during your policy’s term? Many term life insurance policies require you to re-apply if you want to change your coverage amount during your term.
• When’s the best time to buy term life insurance? Generally, the younger and healthier you are, the lower your life insurance rate will be. If you’re married, buying property, or starting a family, term life insurance is an affordable way to help make sure your family has financial security if you die unexpectedly.
• Can you cash out term life insurance? No, you can’t “cash out” or sell back a term life policy since these types of policies don’t include a cash value component.
• What happens if I outlive my term life policy? If your term life policy expires, your insurer will notify you and you’ll no longer have to pay your premium. If you still need coverage, you may be able to renew your policy or convert it to whole life insurance.

The associated disclosure for this claim: $250,000 of term life insurance coverage starts at $16 per month through eFinancial.

The associated disclosure for this claim: In some states, Progressive Life Insurance Company offers a “flexible term” policy that lets you increase or decrease your coverage amount without reapplying.