What is Term life insurance?

Term life insurance is perhaps the easiest and most straightforward type of life insurance. The coverage and terms are flexible, the cost is affordable, and the medical examination is optional.
Author: Brian Greenberg CEO of True Blue Life Insurance
Last updated June 23, 2021

Put simply, term life insurance is a temporary agreement between you, the insured, and the insurance provider. We say temporary, since term life insurance is not a permanent solution, like whole life insurance.

Instead, you choose a predefined term, such as 10, 20, or 30 years. If you pass away during this term, the insurance provider will pay your beneficiaries the death benefit.

On the other hand, if you outlive the term, the policy will come to an end, and the insurance provider will not make any payments to you or your beneficiaries. That is unless you want to pay extra for a return of premium policy.

It is for this reason that term life insurance is mainly used as a precaution against the unexpected. And it also for this reason why term life insurance is so affordable.

How does term life insurance work?

Term life insurance is pretty simple. You choose how much coverage you want, and how long you want the coverage for (known as the term). If the insured passes away during the chosen term, the beneficiaries will receive the death benefit.

During the term, the cost (known as the premium) will never increase and the term will never decrease.

Furthermore, the policy will never be canceled, even if your health changes or you develop serious health conditions. The only time the insurer will cancel your policy is if you miss payments.

Choosing coverage

Coverage wise, a simple calculation is to multiply your annual income times 15. For example, if you make $50,000 a year, $750,000 of coverage is a good rule of thumb.

But, you shouldn’t have to struggle to make life insurance policy payments. We firmly believe that a $50,000 policy you can easily afford is better than a $750,000 policy that may lapse because you missed payments. So, be sure to compare rates for multiple coverage amounts. Make sure you can afford the policy you get.

Choosing the policy term

The policy term is the duration of how long the contract between you and the insurer will last. Most insurance companies offer 5, 10, 15, 20, 25, and 30-year policies. Some even offer 40-year policies.

The maximum term period that will be available to you depends on your age. Most likely, you won’t be able to get coverage beyond age 90 with a term policy.

Keep in mind that you can always cancel your term life insurance policy if you no longer need it.

We believe that it’s better to opt for a 20-year term to be on the safe side. While it costs slightly more than a 10-year term policy, you will save a lot of money compared to getting a 10-year term, and then getting another 10-year term policy once the first policy ends.

Medical examination

Medically underwritten term life insurance policies offer the best price. But as the name indicates, they require a medical exam.

The medical exam is scheduled with a licensed physician near you. If you are unable to visit a physician, it can be arranged for the physician to meet you at your home or office.

This also shows that the medical exam isn’t as bad as you may think. The physician will take your vitals, such as blood pressure and oxygen levels. They will also draw blood for a more in-depth review.

If you are afraid of needles or don’t want to undergo the medical examination for other reasons, you can opt for a no medical exam term life insurance policy instead.

Don’t miss payments

We previously mentioned it’s better to go with a $50,000 policy that you can afford, than a $750,000 you struggle to pay. While some insurers may be more forgiving than others, if you miss payments, the insurer will cancel the policy.

How much does term life insurance cost?

Probably less than you think. Term life insurance is one of the most affordable types of life insurance available. In fact, according to our recent study, around 50% of people overestimate the cost of term life insurance.

Other types of life insurance can cost 5 to 10 times more than term life insurance. So if you’re looking for the most affordable life insurance, term life insurance is for you.

We’ll talk about why term life insurance is so affordable next, but first, here are some sample prices.

Average term life insurance rates by age

These rates are calculated for a 20-year term policy.

Age & Gender$50,000$250,000$500,000$1,000,000
25 – Male$8.61$12.35$19.11$31.16
25 – Female$7.83$10.89$15.72$23.47
35 – Male$9.48$13.38$21.28$35.06
35 – Female$8.66$12.12$17.87$29.91
45 – Male$15.27$26.31$46.27$88.85
45 – Female$12.83$21.22$37.20$69.10
55 – Male$31.97$64.81$119.13$227.85
55 – Female$24.71$48.87$88.73$166.17
65 – Male$81.61$201.35$387.35$748.10
65 – Female$63.12$142.47$264.22$508.99

The prices above are sample prices calculated for non-smokers based in Arizona in excellent health. Get a quote to calculate your price.

Why term life insurance is so inexpensive

Term life insurance is one of the most affordable types of life insurance. In fact, term life can cost 5 to 10 times less than whole life insurance.

There are a few reasons why term life insurance is so affordable:

  • The average life expectancy is increasing.
  • When shopping through an online brokerage like True Blue Life Insurance, you can compare prices from multiple carriers. This leads to carriers offering competitive pricing to gain your business.
  • A certain percentage of people will miss payments, which leads to the policy getting canceled.
  • There are few administrative costs to underwrite and manage term policies.
  • If you live past the term, the insurance company avoids paying the death benefit.

It’s no surprise that as you get older, it costs more to buy a new life insurance policy. That’s true for any kind of life insurance.

Plus, as you get older, your chances of developing one or more health conditions go up — and that could also increase the rate you would pay for coverage. In short, the longer you wait, the fewer choices you’ll have for purchasing affordable life insurance.

But, if you buy a term life insurance policy while you’re younger and your health is good, you can lock in a lower price and minimize your cost for coverage as the years go by.

If you already have a significant health condition (or more than one), such as diabetes or even cancer, know that not all companies will rate you the same way. Working with an independent agent can help make the shopping and application process easier and your coverage more affordable.

True Blue agents are thoroughly familiar with the underwriting rules at the dozens of insurance companies we work with, and they know which companies are more lenient when it comes to different health issues. This makes it possible for us to help you keep the cost of term life insurance as low as possible.

Can the premiums change?

It depends on the type of term life insurance. A guaranteed level term life insurance is our recommended, and the most popular type, of term life insurance. With this type of term insurance, the premium will stay the same, guaranteed.

Is term life insurance best for you?

Here are a few scenarios when term life insurance is a great option:

  • If you want life insurance for a certain duration – Some individuals only want life insurance while they need it most. For example, when starting a family, a 20-year term policy will ensure coverage when your spouse and children need it most.
  • If cost is a main deciding factor – Term life insurance is affordable. In fact, dollar for dollar, term life insurance provides the most coverage for the cost.
  • If you are age 50 or older but you are still in good health – Life insurance gets expensive as you get older. If you are healthy, term life insurance is still an affordable option, even at age 50 and 60.

If you are single or have no children, you probably don’t need life insurance.

But if you recently got married or started a family, or you’re planning to anytime soon, it would be a good time to consider buying a term life policy.

It’s usually the most affordable type of life insurance for young couples who are just starting out, and it would help protect your family and make sure they are taken care of (including your children’s education) in case you die suddenly.

In that scenario, a term life policy would also help to pay for outstanding liabilities (e.g., personal loans, credit card debt, mortgages, and car payments), so your spouse or another family member wouldn’t need to worry about that in your absence.

Should you buy a conversion option with your term life policy?

We believe so. There are at least two good reasons you might want to convert your term life policy:

  • The first is that it can be outrageously expensive to renew a term policy.
  • The second is that you may not be able to qualify for a permanent form of life insurance, such as universal or whole life, if you’ve reached a certain age or if you’ve developed a serious illness.

Here’s an example: Let’s say a 45-year-old man has a 20-year term policy that includes a 10-year conversion clause. Nine years into the life of the contract, he develops a health issue, such as heart disease or diabetes. Because he’s still within his 10-year conversion period, he can convert his temporary policy to a permanent one without the need for another physical exam. By converting his policy, he winds up with the same coverage at a lower annual premium than if he were to start all over with a brand-new policy.

If his term life insurance policy had been written without the conversion clause, he would be facing an expiring policy and costly renewal premiums — if he were able to get insured at all, given his change in health status.

Even if you don’t develop a health issue, you will get older. So, when your term policy expires and you start looking for a new policy, you’ll find that it will be considerably more expensive to get insured.

You can see why it makes sense to at least consider including a conversion option in a term life insurance policy. Oddly enough, according to insurance industry think tank LIMRA, only 1%-2% of term life policyholders actually take advantage of their conversion option. We find this mind-boggling.

In most cases, a conversion option allows you to convert all or part of your term policy to a permanent policy without additional underwriting — which means you probably won’t have to take a physical exam when you convert your policy. The conversion needs to be done within a specified time frame or before you reach a certain age. Either way, you must take advantage of the option to convert the policy before the term ends. You can’t convert it afterward.

When buying a term life insurance policy, always ask if there’s a conversion option. Think of it as leasing your insurance policy with the option to buy it at some point.

Keep in mind that conversion options vary from one insurer to the next. Some companies have excellent conversion options, whereas others have terrible options or none at all. You’ll most likely pay a little more to include this type of option in your policy, but it could well be worth it. As we illustrated in the example above, buying a policy without a conversion clause can turn out to be a costly mistake.

Something else to bear in mind is that when you convert your term life coverage to a permanent life or universal life insurance policy, the new policy’s first-year premium might be reduced.

We represent dozens of companies, so one of our licensed True Blue agents can help you decide whether a term life insurance policy with a conversion option is the right choice for you, or if another type of coverage — such as permanent variable, whole, or universal life insurance — might be a better decision. Whatever choice you make, we can help you find the right policy at the right price.

What is the maximum term life insurance coverage you can get?

Every insurance company uses its own equation to determine the maximum amount of coverage it will offer an applicant. Typically, the equation includes some combination of annual gross household income and net worth.

For most people with a net worth in the “normal” range, the main factor is a multiple of income based on their age.

Your AgeRecommended MultipleMaximum Multiple
20 – 30 years old
15x income20x income
31 – 40 years old15x income20x income
41 – 50 years old10x income15x income
51 – 60 years old7x income10x income
61 – 65 years old5x income7x income
66 and older3x income5x income

Different types of term life insurance

Level Premium

Premiums stay the same over the term of the policy. The policy can be renewed at the end of the term, but the premiums will begin to steadily rise.

Annual Renewable Term

The coverage is renewable after a given term, whether it’s a year, five years, or longer. The coverage will stay in force, even if the insured person would be rejected when applying for a brand-new policy. Like most other term policies, the premiums are based on the insured’s age and health at the time of renewal.

Return of Premium Life Insurance

If the insured person outlives the term of the policy, the insurance company will pay back, or return, the premiums to the policyholder. The catch is that premiums for return of premium policies are about three times higher than for other term policies.

Living Benefits Life Insurance

A rider, or add-on, to a term policy that allows the insured person to access the death benefits if he or she develops a chronic or catastrophic illness. The Living Benefits rider makes it possible to use the policy’s death benefits to help pay large medical bills while the insured person is still alive.

Decreasing Term Life

The benefits steadily decrease over the course of the term. The decreases generally occur at annual intervals or a few months at a time.

Guaranteed Level

Premiums and coverage remain the same for the duration of the policy.

Non-guaranteed Level

These policies only guarantee stable premiums and coverage for part of the term. After that, premiums and coverage could fluctuate. Keep an eye out for a provision like this in your policy.

Group Life

Usually, these policies are provided by employers. Rather than an individual being the policyholder, it is a group of people. There are other ways to get a group life insurance policy outside of getting it through an employer.

What type of term life insurance is best?

While this depends on your personal scenario and circumstances, we typically recommend a guaranteed level term life insurance policy with a term of 20 years. This means that the premiums and death benefit are guaranteed to stay the same for the entire 20 years — as long as you pay the premiums on time.

Best term life insurance companies

CompanyS&PA.M. BestBBB
Mutual of OmahaA+A+A+
John HancockAA-
Pacific LifeAA-
PrudentialAA-A+Not rated
Lincoln FinancialAA-A+A-
Banner LifeAAA+A+
American MemorialA
Fidelity LifeA+A-A+

How to get term life insurance quotes

True Blue Life Insurance makes it easy to compare term life insurance rates entirely online.

Getting a term life insurance quote online

  1. Enter your basic details, like your height, weight, state, and gender.
  2. Compare rates from dozens of carriers
  3. Submit an application request online

Depending on the product and carrier you choose, you may be able to complete every step online. Otherwise, we’ll mail you the application papers to fill out and sign.

Either way, our licensed agents are here for you, every step of the way. They can answer your questions, and even walk you through the process.

Prefer getting a term quote over the phone?

We can do that. Just call 1-866-816-2100 and our licensed agents are happy to assist you. They can provide you with multiple rates, or find you coverage based on your budget.

If you like the rate we find, we’ll make it easy for you to apply.

Have our agents shop for you: Submit a request and we’ll send you rates

Busy schedule? Don’t feel like calling? We’ll do the work for you. Simply submit a request for us to shop for you, give us some details, and we’ll email you the term rates we find.

Be sure to tell us about your health conditions as well. Perhaps term life insurance isn’t the right for you. In that case, we can present you with alternative options.

Questions about term life insurance

What happens after the term ends?

Typically, the policy will come to an end. Depending on the insurer though, you may be offered an extension before the term ends, at an increased premium. Or you could be offered an alternative product instead depending on your age.

It’s for this reason we recommend getting policies with a conversion clause. These policies allow you to convert your term policy to a permanent policy when the term ends.

How does term life insurance payout?

No matter the insurance product, the “payout” process to the beneficiaries is the same. Generally speaking, beneficiaries must file a claim with the insurance company and present a death certificate in order to receive a payout on the policy. Death benefits are paid either as a one-time lump sum or as an annuity.

How much of your income should you spend on life insurance?

The rule of thumb for term life insurance is to spend 2%–3% of your gross income on coverage. However, everyone’s scenario is different. Keep in mind that the policy will come to an end if you miss payments. It is most important to be able to make the payments comfortably.

Isn’t term life insurance considered “renting vs owning”?

We disagree with the analogy of “renting versus owning” when it comes to life insurance. With a house, for example, the cost of renting vs buying is often similar. In that sense, buying can make more sense than renting.

But with life insurance, the cost of “renting” (term) compared to buying (permanent) is often 10 times less!

Search for reviews

Before you choose an insurance company, search online for company reviews and complaints. See if the company has a good reputation from customers that have already purchased from them. The better business Bureau and Google Business are good places to start. There are sites online that are dedicated to conducting life insurance company reviews that share the positives and negatives of each company.

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