Term Life Insurance – What You Need to Know Before You Buy!

By Michael Horbal – updated on – 09/21/2022

Protect your loved ones with term life insurance.

Term life insurance is the simplest and most affordable way to protect your loved ones financially if you die.

It’s a type of life insurance that provides coverage for a specific term.

You can get a quote in minutes and choose a policy that fits your needs and budget.

Plus, many policies offer accelerated underwriting with no exam required.

What is Term Life Insurance, and How Does it Work?

Term life insurance provides a death benefit if you die from natural causes, health issues, or accidental death.

You choose a level term period between 1-40 years.

During the term, your premium and death benefit remains fixed.

When the level term period ends, your life insurance is still there but:

  • Premiums will increase annually
  • The death benefit may/may not decrease

Most policies pay a lump sum at death, but other life insurance settlement options exist.

Term life is an ideal type of insurance when you want the most coverage for the lowest price.

We even make it easy by offering companies with accelerated underwriting and no-exam life insurance for $500k – $3 million.

Many life insurers are doing away with paramed exams. They are increasingly using sources like your build from your medical records and the MIB to make their underwriting decisions faster.

How Long is Term Life Insurance For?

There is no one-term-length-fits-all answer.

According to life insurance statistics, the 20-year term life policy is the most common.

The duration of coverage depends on your specific needs and situation.

Life insurers offer many durations, including:

  • 1 Year Term
  • 5 Year Term
  • 10 Year Term
  • 15 Year Term
  • 20 Year Term
  • 25 Year Term
  • 30 Year Term
  • 35 Year Term
  • 40 Year Term

One life insurer, AIG, offers other durations of 16 – 30 years in one-year increments.

Your policy becomes an annually renewable policy at the end of the level term period.

And while most policies allow you to renew up to age 90-95, the price jumps dramatically, and/or the death benefit decreases to a fraction of the original policy.

Bottom line – Choose your term length carefully because you won’t keep the policy when the term ends.

How to Choose the Right Term Length

When you buy a new policy, choosing the right term length is essential because you can’t change it later on.

Consider these points before choosing:

  • Match your term to the duration of time you need coverage
  • Maybe buy multiple term lengths if your needs vary
  • Consider terms slightly longer than your expected need
  • Don’t forget that price increases with longer terms.
  • Take the time to properly determine your life insurance needs.

If you have a mortgage, consider a 30-year policy.

You can buy multiple policies with different term lengths or one with riders to accomplish the same.

Are you looking for coverage to replace your income?

Plan on retiring in 15 years? Take a look at 20-year terms, in case you keep working.

We recommend our Life Insurance 101 guide if you need a quick overview of the application process.

Do you need life insurance for SBA life insurance or key person life insurance? Term policies are great.

Conversion

A term life insurance conversion privilege allows you to exchange your term policy for universal or whole life insurance.

While conversion is rarely used, it’s essential to have it if you develop health issues.

The reason why is that you don’t need to go through medical underwriting again.

Some companies offer conversion for the entire level term period, while others limit the conversion period available.

If you are a senior by the time your level term ends, pay attention to the conversion privilege in case you need it.

Riders

Most policies offer additional benefits such as accidental death, child coverage, accelerated benefits, etc.

For detailed information, check out our guide – Life Insurance Riders

Group Life vs. Term Life Insurance

There is no comparison.

Term life is owned and controlled by you, while your employer controls group life.

Leave your job or lose your job, and you lose your group coverage.

No big deal, right? If you develop a significant health issue, you may have problems.

When comparing term life insurance quotes vs. group life insurance, look at the pros and cons of each.

Group life insurance Pros vs. Cons

  • Pros
  • Easy application process
  • No health questions for base coverage
  • Paid for by the employer
  • Coverage may increase with salary
  • Some policies are portable if you leave
  • May allow conversion to permanent insurance
  • Cons
  • Rate increases every five years
  • Additional coverage requires medical review
  • The employer may cancel the plan
  • If you leave your job you can lose coverage
  • Some policies are not portable
  • Permanent policy pricing may not be favorable

Term Insurance Pros vs. Cons

  • Pros
  • You have 100% control over policy
  • Premium is fixed for the term length chosen
  • Conversion options are more favorable
  • Pricing is more favorable at greater coverage amounts
  • Cons
  • Underwriting may take 6-8 weeks
  • A paramedical exam may be required
  • Health issues may be costly

With group life insurance, the base amount given to employees for free is a great deal and should be accepted.

If you are looking at supplemental group coverage like the AICPA offers, compare that to an individual policy.

While not a group policy. Costco term life insurance is available to members.

Term Life vs. Universal Life Insurance

Universal life insurance is permanent life insurance that has the potential to accumulate cash value.

There are many variations of universal life insurance available, including:

  • Index Universal Life
  • Guaranteed Universal Life (GUL)
  • Cash Value Accumulation Universal Life
  • Survivorship Universal Life

On the other hand, a guaranteed universal life (GUL) works similarly to a term life policy. The GUL provides a guaranteed death benefit (to age 120 with some policies) with little cash value.

Mortgage Life Insurance or Term Life

When comparing term vs. mortgage life,

The premiums for both policies remain level for the term.

The difference concerns the coverage amount and how it gets paid out.

Mortgage life insurance coverage decreases each year with your mortgage, but your premium remains level.

The death benefit gets paid directly to the mortgage company if you die.

On the other hand, a term life insurance policy has a level premium and death benefit.

Furthermore, the proceeds get paid to the beneficiary you name, such as your spouse.

For other loans, such as a business loan, a level term life with a collateral assignment is used to ensure the bank only receives what is owed, with the balance to your beneficiaries.

Term Life Insurance vs. ROP

If you like getting money back from your term life, an ROP – Return of Premium policy may be a good fit.

With the ROP term, the life insurer refunds all premiums you paid at the end of the term.

ROP may sound like a good deal (and it can sometimes be), but remember that your ROP will be more expensive.

If you have longevity in your family history, ROP may be a good option when you outlive your term.

Underwriting for most life insurance policy types is similar, although some policies allow you to skip the life insurance medical exam.

FAQ

What is the difference between term and whole life insurance?

Term life insurance is temporary, providing coverage for a specified duration of time, while whole life insurance builds cash value and has the potential to last a lifetime.

Does term life insurance have a cash value?

No, term life insurance does not have a cash value. Some term life policies offer a return of your premium if you cancel the policy.

What is group term life insurance?

Group term life insurance is the coverage offered by your employer. Most employers have a base amount of life insurance offered to all employees and an additional amount that employees may purchase.

Can you sell a term life insurance policy?

You may be able to sell your term life insurance policy if you are older (age 65+), the policy has a conversion privilege available, and your health has declined. It’s called a life settlement.

Is term life insurance taxable?

Term life insurance is not taxable for most situations. There are some instances (typically for business insurance cases) where they may be a tax question. Always consult your accountant for tax advice.

Final Words

Get an instant term life insurance quote now. There’s no pressure and never any obligation.

We’ll provide you with the information you need to make an informed decision for yourself.

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Michael Horbal - Author

Michael J. Horbal

Owner of RiskQuoter

Too many people overpay for life insurance because they end up with the wrong life insurance company, agent, or both. That’s why I started RiskQuoter – To help you get the best life insurance rates available.

As an independent insurance agent, I’m licensed in all 50 states and the District of Columbia and offer 40+ life insurance companies to ensure you get your best rate!

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