If you never take the initiative to buy life insurance, your family may be left struggling to get by without income during their time of grief. Add in the fact that the average funeral with burial cost $7,640 nationally in 2019, and it’s easy to see why so many people worry about this troubling scenario.
Fortunately, life insurance ensures this aspect of your life isn’t left to chance, and it’s easier than ever to buy a policy that provides peace of mind.
Term life insurance is the most popular type of life insurance purchased today. While term life insurance comes in several different forms, term coverage remains popular due to its low premiums and its simplicity. But what exactly is term life insurance, and how does it differ from other types of life insurance?
What is term life insurance?
Unlike permanent life insurance that lasts until the day you die as long as you keep up with your premiums, term life insurance coverage has a set term that’s meant to last only as long as you want it to — usually for the span of your working years. For that reason, the majority of term life insurance policies last for 10 years, 15 years, 20 years, 25 years or 30 years.
Term life insurance doesn’t build cash value like some other types of life insurance do, nor does it have an investment component. Instead, you pay a fixed premium for a fixed number of years, and your beneficiaries receive the death benefit if you die before the policy expires.
While there are many reasons consumers buy life insurance, term life insurance is usually purchased by individuals who want a robust level of coverage without having to pay high premiums. Since some term life insurance policies are offered online — sometimes even without a medical exam — this type of coverage is also popular among consumers who are young and in excellent health.
How much does term life insurance cost? A search from insurer Haven Life shows that a 40-year-old woman in excellent health could currently purchase up to $400,000 in term life insurance coverage that lasts for 20 years for a little over $28 per month. Meanwhile, a 40-year-old man in excellent health could get the same coverage for less than $35 per month.
Advantages of term life insurance
- Premiums can cost a fraction of what consumers pay for permanent life insurance.
- You can get more coverage for your money.
- You can tailor the length of the policy to your needs.
- You can buy term life insurance online, possibly even without a medical exam.
Disadvantages of term life insurance
- The death benefit for your policy ends when your policy period is over, meaning you may not have coverage for your entire lifetime.
- Term life insurance policies don’t build cash value or have an investment component.
- You’ll usually need to meet health and age requirements to qualify.
Types of term life insurance
When choosing term life insurance coverage, the length of the policy is going to be your primary concern. But there are also some additional variables to consider when it comes to term life, as there are several types of term life policies:
- Level term life insurance charges the same premium for the entire life of the policy, and your beneficiaries will receive the same death benefit amount if you die while the policy is in force.
- Decreasing term life insurance is term coverage that pays out a decreasing death benefit over the length of your policy, even though you pay a fixed premium every month.
- Renewable term life insurance describes any term life policy that’s renewable beyond its original term, regardless of age or health. However, premiums will go up based on your age after the original term.
- Return of premium life insurance reimburses you for the premiums you paid over the lifetime of your policy once it ends. You’ll pay a higher rate for this type of coverage than you will for a traditional term life policy.
Take the time to compare the different types of term life insurance before you shop around for a policy. You should also keep in mind that life insurance rates can go up or down based on a variety of factors, many of which are beyond your control. These can include:
- Your age
- Your overall health
- Family health history
- Coverage amount
- Length of term
- Hobbies you might have, including risky activities
- Tobacco status
How much term life insurance do you need?
At the end of the day, only you can decide how much term life insurance coverage you want to buy — and how long you need it to last. While the typical rule of thumb is to buy a policy with a death benefit of at least 10 times your current income, you may want to invest in term life coverage with an even higher death benefit, perhaps as much as 20 times your income or more, depending on your needs.
This means that someone who earns $50,000 per year would want to purchase at least $500,000 in term life insurance, but potentially closer to $1 million or even more. Meanwhile, a high earner who brings in $100,000 per year should buy at least $1 million to $2 million in term life insurance coverage.
As you shop around for term life insurance, factors to keep in mind include:
- Your current income that needs to be replaced when you’re gone
- How long you want coverage to last
- How many dependents you have and their future needs
- Debts you have that will need to be paid off, including mortgage debt, car loans, credit card debt and medical bills
- The cost of your final expenses
Is term life insurance right for you?
Term life insurance coverage is the most popular type of life insurance purchased today, and for good reason. Premiums can be incredibly affordable, which means this type of coverage can help you save money on a policy, qualify for a larger death benefit to protect your family or both.
You can also potentially benefit from term life insurance at almost any age. People in their early 30s will be able to get low premiums, thanks to being young and in good health, while those in their 40s can use term life to protect their families without having to pay the high premiums of whole life insurance. And even those in their 60s can use term life as a less expensive policy to cover their final expenses.
Our advice: You’ll always qualify for better rates on life insurance if you apply sooner rather than later, so take the time to shop around for term life insurance with at least three providers and lock in the coverage you need today.
Not sure if term life insurance is right for you? Read CNN Underscored’s guide to the different types of life insurance.