Our experts answer readers’ insurance questions and write unbiased product reviews (here’s how we assess insurance products). In some cases, we receive a commission from our partners; however, our opinions are our own.
- Term life insurance offers coverage for buyers who want to protect their family for a limited time.
- 99% of term policies never pay out due to conversion, expiration, or lapsed payments.
- Not all term life insurance policies can be converted to permanent life insurance.
Life insurance can financially make or break a family after an unexpected loss. Yet, many individuals don’t prioritize it, especially while young and healthy. Ironically, the best time to buy life insurance is also the time when buyers are least likely to see the long-term value.
It may feel difficult to justify paying for another big monthly expense on top of housing, car payments, student loans, and saving for retirement. But when protecting your family should tragedy strike, an extra $20 to $60 a month is a small price to pay.
Of course, the more you’re willing to spend, the more coverage you can get. Some people even use life insurance to plan for retirement and other benefits that can be used in their lifetime. If you’re buying term life insurance, the goal is to protect family members should you die unexpectedly within a pre-agreed term.
What should you expect from life insurance?
Life insurance is a contract between you and the life insurance company where you pay premiums (monthly or annually) for a payout that your living relatives will receive, known as the death benefit. Should you die, the insurance company pays the death benefit to your chosen beneficiary.
“If you don’t make it home and someone relies on your income to live, you need life insurance,” Mark Williams, CEO of Brokers International, told Insider.
Most people get life insurance to cover the mortgage, education, and other expenses so their family can continue after they die. The goal of having life insurance is to ease the burden on your loved ones after your loss. Term policies add the factor of an expiration date. When considering the types of life insurance, the key is to set your priorities and expectations and buy accordingly.
How term life insurance works
Unlike permanent life insurance, which lasts your lifetime, term life insurance covers a 10, 20, or 30-year period. If you die during that period, your beneficiaries get your payout, known as the death benefit. Term policies attract buyers with a lower introductory rate. Particularly if you want to convert to a permanent policy later on, though, the price will rise substantially.
If you buy from companies like MassMutual, Columbus, or Mutual of Omaha, a term policy will be written with a schedule. Your policy documents will tell you when the policy expires, when you can convert to a permanent life insurance policy, and your cost if you keep your term policy active. Smaller companies, particularly those operating exclusively online, may offer rates as low as $9.99 monthly, but these companies also offer no permanent conversion options. So any premiums you pay will be lost once the term expires
There are four steps to purchasing term life insurance:
- Apply: Online or with an agent, which may include a medical exam
- Choose a term: Usually 10, 20, or 30 years
- Decide a death benefit amount: Ten times your annual salary is a rule of thumb, but you can decide what works for your family
- Name a beneficiary: You can name one person, or multiple people, to get the payout if you die
How long of a term should I choose?
According to Guardian Life Insurance, a good rule of thumb is to choose a term long enough to see your children out of the house and through college. You’ll pay more monthly for a longer term, but it is better to be cautious because you don’t know what the future holds. Also, getting insurance when you are young and in good health is usually easier.
How much should my death benefit be?
When selecting your death benefit amount, you typically select 10 times your annual income. For example, if you make $75,000 per year, then you would purchase a life insurance policy for $750,000.
However, you aren’t tied to that number. You might want more to pay for your kids’ college, or pay off your family’s mortgage, for example.
Generally, you’ll probably want to get as much life insurance as you can comfortably afford each month. If it would be a struggle to make your premium payments, it’s probably too much for you.
Who should I select as a beneficiary?
After selecting a death benefit amount, you select the beneficiary of your life insurance policy. A beneficiary is the person you select to receive the death benefit. You can pick multiple people, a trust you’ve set up, or a charity, according to the Insurance Information Institute.
Most couples select their spouse, partner, or trust created for a child as the beneficiary of their life insurance policy.
After completing these steps and being approved by the insurer, you’ll get your monthly premium. From there, you’ll start paying for your policy and have your coverage in place.
Types of term life policies
Several types of term life policies exist. Some are more popular and expensive than others. However, it’s not just about the type of term life insurance policy. You should also consider the riders that can be used to supplement coverage.
Common Term Life Insurance Riders
All of these riders are available with some term policies, but not all term policies offer these riders. If you’re interested in a particular one, you’ll want to check with your life insurance company.
Something to note is you don’t have to buy a term life insurance policy to enjoy the short-term benefits of term life insurance. Many whole life policies offer term riders for key circumstances.
How much does term life insurance cost?
Term life insurance pricing varies widely. Companies like Ethos Life may advertise premiums as low as $8/month. Our research showed most established life insurers offer more moderate rates for similarly moderate policies. A few examples include the following:
Where to buy term life insurance
Term life insurance can be purchased through industry giants like New York Life Insurance, Guardian, MassMutual Life Insurance, and Columbus Life. If you want a higher value policy, the option to convert at a later time, or term riders to temporarily increase the value of a whole life policy, we’d recommend working with established giants.
However, many online-only companies like Ethos and Ladder Life offer easy alternatives for people willing to accept less flexibility for a lower monthly premium. We’ve rated the best term life insurance companies based on coverage, price, service, and other key factors. Whatever you choose, we recommend shopping around.