How does term life insurance work?
Unlocking the mysteries of term life insurance: A comprehensive guide to coverage, benefits, and policy intricacies for informed decision-making. Delve into the inner workings of term life insurance, grasp its significance, and make confident choices with expert guidance. Understand the nuances, explore various options, and gain the knowledge you need to secure your financial well-being.
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Jeff Root
Licensed Life Insurance Agent
Jeff is a well-known speaker and expert in life insurance and financial planning. He has spoken at top insurance conferences around the U.S., including the InsuranceNewsNet Super Conference, the 8% Nation Insurance Wealth Conference, and the Digital Life Insurance Agent Mastermind. He has been featured and quoted in Nerdwallet, Bloomberg, Forbes, U.S. News & Money, USA Today, and other leading...
Licensed Life Insurance Agent
UPDATED: May 26, 2023
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Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.
UPDATED: May 26, 2023
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident insurance decisions. Comparison shopping should be easy. We are not affiliated with any one insurance company and cannot guarantee quotes from any single insurance company.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different insurance companies please enter your ZIP code above to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- Term life insurance is usually offered with 10-, 20-, or 30-year terms in which a policyholder pays a monthly fee for a predetermined coverage amount
- Term life insurance is usually more affordable than whole life insurance but doesn’t offer cash value
- Term life insurance rates can vary by age, gender, coverage amount, health status, and the company you choose
Welcome to our comprehensive guide on term life insurance! If you’re curious about how term life insurance works and want to make informed decisions about your coverage, you’re in the right place. In this article, we’ll demystify the intricacies of term life insurance, including its purpose, benefits, policy terms, and coverage options.
We’ll also explore factors to consider when choosing a policy, such as the duration of coverage, death benefit amounts, and premium costs. By the end, you’ll have a clear understanding of how term life insurance works and be equipped to protect your loved ones financially.
To get started, simply enter your zip code and compare rates from the best insurance providers in your area. Secure your family’s future today!
How does term life insurance work?
Term life insurance is appealing to many people due to its affordability. Knowing how term life insurance works can make life easier for you as a policyholder and for your beneficiaries when it comes time to submit a life insurance claim. So, what is term life insurance?
Term life insurance is a life insurance policy that serves as an agreement between an insurer and a policyholder. In short, the policyholder agrees to monthly payments over a predetermined term, while the insurer agrees to distribute a death benefit if the policyholder dies within that term.
Most life insurance companies that offer term life insurance will have options for 10, 20, or 30-year terms. This simply means that the policyholder will agree to pay for 10, 20, or 30 years. As long as the policyholder is up-to-date on payments, the insurance company should disperse the death benefit when the policyholder dies.
Comparing Term vs. Whole Life Insurance
Term life insurance and whole life insurance are both popular life insurance policy options. While common, these policy options have notable differences in usage and cost. These are the two most significant factors for most people as they compare term life vs. whole life.
One key difference between term and whole life insurance is the payment structure. As noted previously, term life insurance policies are paid over the course of a predetermined term. Whole life insurance differs in that it is typically paid over the course of your life.
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Some life insurance companies will allow full payment or other similar options while continuing to offer coverage over your whole life, but most people can’t afford that. Another significant difference revolves around the cash value associated with a whole life insurance policy.
Term life insurance offers a significant death benefit, usually in excess of $100,000. At the same time, while whole life insurance provides a death benefit while accruing cash value. Many times, a whole life insurance death benefit will be smaller than those seen in traditional term life insurance policies.
The cash value builds over time and can also generate interest. That cash value can be used later date to pay policy premiums or cover emergency expenses. Due to the cash value component, whole life insurance tends to be much more expensive on a monthly basis.
Suppose you can only afford term life insurance now but think you might want whole life insurance in the future. In that case, many companies offer convertible term life insurance. In short, this policy feature allows you to convert from term to whole life insurance in the future.
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How much are term life insurance quotes?
Term life insurance varies in price greatly based on a handful of factors. Some key pricing factors are age, gender, health, and the coverage amount. From there, you can expect subtle differences in price from each life insurance company you request a personalized quote from.
As a general rule of thumb, males tend to pay more than females, and older adults will pay more than young adults. Life insurance prices are based on risk to the insurer, and older adults are typically at a greater risk of dying than younger adults.
| Age | $100,000: Male | $100,000: Female | $250,000: Male | $250,000: Female |
|---|---|---|---|---|
| 25 | $11.03 | $10.02 | $22.10 | $12.91 |
| 30 | $11.12 | $10.07 | $15.31 | $13.02 |
| 35 | $11.12 | $10.07 | $15.42 | $13.02 |
| 40 | $12.65 | $11.12 | $17.94 | $15.21 |
| 45 | $14.57 | $13.31 | $21.55 | $19.69 |
| 50 | $18.60 | $17.20 | $30.19 | $27.02 |
| 55 | $24.51 | $20.61 | $42.88 | $34.35 |
| 60 | $35.88 | $27.48 | $71.10 | $50.86 |
| 65 | $51.06 | $37.76 | $109.82 | $75.14 |
Above, you can get a general idea of how much you might expect to pay for life insurance if you’re a healthy adult. Any major health concerns will quickly raise your term life insurance rates. Otherwise, prices shouldn’t be drastically different from the averages above.
If you truly want the best term life insurance quotes, you’ll want to be sure you compare rates from multiple life insurance companies. Every company seems to emphasize different pricing variables uniquely, so that rates can differ in many situations.
| Age | AIG | Farmers | MassMutual | Nationwide | State Farm | Transamerica |
|---|---|---|---|---|---|---|
| 25 | $13.87 | $23.85 | $14.01 | $15.75 | $20.01 | $13.67 |
| 30 | $14.96 | $26.68 | $14.71 | $15.40 | $21.84 | $13.76 |
| 35 | $14.96 | $35.35 | $15.58 | $17.80 | $23.84 | $14.79 |
| 40 | $19.56 | $53.10 | $19.75 | $21.72 | $31.32 | $20.12 |
| 45 | $25.22 | $78.27 | $27.15 | $30.08 | $42.02 | $27.35 |
| 50 | $40.10 | N/A | $42.81 | $44.86 | N/A | $40.94 |
| 55 | $75.40 | N/A | $79.87 | N/A | N/A | $73.79 |
Above, you can see sample quotes for a 30-year term life insurance policy with $100,000 in coverage. While there isn’t a major difference in monthly premiums, $10 more per month can add up to over $3,000 over the course of the entire term. Why would you pay more if you didn’t have to?
Most term life insurance policies offer level premiums which simply means your monthly bill won’t ever change. Some companies may offer increasing or decreasing premiums if you anticipate income changes in the future. Increasing term life insurance policies are a little more complex.
Term Life Insurance Ratings and Claims
Price is certainly important when analyzing a term life insurance policy. Before you commit to any life insurance, you’ll want to be sure that the company is rated highly and that there aren’t any major concerns regarding the claims process.
There are a handful of organizations that are reliable for life insurance ratings. Some examples include:
- A.M. Best
- National Association of Insurance Commissioners
- Standard and Poor (S&P)
- Fitch
- Moody’s
- J.D. Power
Each of these organizations can provide insight into an insurer’s current financial strength, financial outlook, customer complaints, and more. If one or more organizations have derogatory remarks on a company, you might want to consider an alternative.
Otherwise, you’ll want to investigate your prospective insurance company’s claims process. Although your beneficiary is the one who will actually initiate this process, you can help by making sure the company you choose has an efficient process with clear instructions.
You can even look to see what information is required on the claims forms, so you have it all in one place for them. Some insurance companies might require your social security number, in which case you should supply this to your beneficiary.
How Term Life Insurance Works: The Bottom Line
Committing to term life insurance is an important decision with years’ worth of ramifications. Once you get your personalized quotes, you can expect to pay a set premium until the end of your policy term or until you pass, whichever comes first.
We hope you have a better understanding of how term life insurance works. Before you go, enter your ZIP code below to get free quotes from various term life insurance companies today.
Frequently Asked Questions
What is term life insurance?
Term life insurance is a type of life insurance that provides coverage for a specific period of time, or term. If the insured person dies during the term, their beneficiaries receive a death benefit.
How does term life insurance work?
When you buy a term life insurance policy, you choose a coverage amount and a term length, usually 10, 20, or 30 years. You pay a premium each month for the duration of the term. If you die during the term, your beneficiaries receive a death benefit equal to the coverage amount.
What happens if I outlive my term life insurance policy?
If you outlive your term life insurance policy, your coverage ends and you don’t receive a payout. However, you can typically renew your policy for another term or convert it to a permanent life insurance policy.
What are the benefits of term life insurance?
The main benefit of term life insurance is that it provides affordable coverage for a specific period of time. It can help cover expenses like mortgages, college tuition, and other debts in the event of your death.
Is term life insurance the right choice for me?
Term life insurance is a good choice for people who need coverage for a specific period of time, such as while they have a mortgage or while their children are in school. It’s also a good choice for people who want affordable coverage.
How much coverage do I need?
The amount of coverage you need depends on your individual circumstances, such as your income, debts, and dependents. A good rule of thumb is to have coverage equal to 10-12 times your annual income.
How do I choose a term length?
The term length you choose depends on your individual circumstances. Consider the amount of time you need coverage for, such as until your children are out of college or until your mortgage is paid off. Also, consider your age and health, as you may not be able to get coverage for as long if you’re older or have health issues.
How do I buy term life insurance?
You can buy term life insurance through an insurance agent or broker, or online through an insurance company’s website. It’s important to compare quotes and coverage options from multiple providers before making a decision.
Compare The Best Insurance Quotes In The Country
Compare quotes from the top insurance companies and save!
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Jeff Root
Licensed Life Insurance Agent
Jeff is a well-known speaker and expert in life insurance and financial planning. He has spoken at top insurance conferences around the U.S., including the InsuranceNewsNet Super Conference, the 8% Nation Insurance Wealth Conference, and the Digital Life Insurance Agent Mastermind. He has been featured and quoted in Nerdwallet, Bloomberg, Forbes, U.S. News & Money, USA Today, and other leading...
Licensed Life Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about insurance. Our goal is to be an objective, third-party resource for everything insurance related. We update our site regularly, and all content is reviewed by insurance experts.