How does term life insurance work?

Term life insurance is an affordable life insurance option that offers a notable death benefit to a policyholder's beneficiaries. Policyholders can usually choose between 10-, 20-, or 30-year life insurance terms. As long as the policyholder stays current on payments, they will be covered for the duration of that term. If the policyholder dies before the term ends, the insurance company supplies a death benefit to the policyholder's beneficiaries.

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Chris Tepedino is a feature writer that has written extensively about home, life, and car insurance for numerous websites. He has a college degree in communication from the University of Tennessee and has experience reporting, researching investigative pieces, and crafting detailed, data-driven features. His works have been featured on CB Blog Nation, Flow Words, Healing Law, WIBW Kansas, and C...

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...

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Reviewed by Laura Walker
Former Licensed Agent Laura Walker

UPDATED: Apr 6, 2022

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The Rundown

  • 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

Before you rush to buy a term life insurance policy, you’ll want to know how term life insurance works. There are subtle details that could help save you money on life insurance in the long run. Who doesn’t like to save money?

This article will highlight how term life insurance works, how you can get the best rates, policy features to know about, and more. After reading this article, you should be prepared to make an informed decision on a term life insurance policy.

Were you looking for the best rates? Enter your ZIP code above to get free quotes from the top life insurance companies in your area or keep scrolling to learn more about term life insurance.

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.

Average Term Life Insurance Rates by Age and Gender
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
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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.

Sample Term Life Insurance Rates for a 30-year, $100,000 Policy
AgeAIGFarmersMassMutualNationwideState FarmTransamerica
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$40.10N/A$42.81$44.86N/A$40.94
55$75.40N/A$79.87N/AN/A$73.79
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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:

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.

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