Term Life Insurance | The Ultimate Guide

  • Last updated Sep 19, 2018 at 7:07PM | Published on Sep 7, 2018
  • Richard Reich
lifetime term life insurance

Term life insurance policies are easy to understand and do not cost as much as a permanent whole life insurance policy. 

Term Life insurance typically comes in 10, 15, 20, 25, and 30 year terms. This means when you reach the end of your policy’s term, you will need to either look for another life insurance option or renew the term for a much higher premium.

What is Term Life Insurance?

 

Term life insurance is often called “pure life insurance” or “temporary life insurance” because it’s intended only to protect your dependents in case you pass away during the term period.

A term life insurance policy is strictly meant to pay your beneficiaries if you die during the policy’s term.

You may be thinking “Isn’t that what a life insurance policy is supposed to do”?

Yes and no.

Other types of life insurance policies offer additional values that most term life insurance policies do not such as building cash value.

What Types of Term Life Insurance are There?

getting life insurance?

 

There are two basic types of term life insurance policies: level term and decreasing term.

Level term means the death benefit (aka “face amount”) will stay the same throughout the length of the policy.

Decreasing term means that the death benefit amount will drop, usually in one-year increments, over the course of the policy’s term.

For term life insurance policies, the premium will usually stay the same throughout the entire term.

Common types of level term are:

    • Annually renewable term
    • 5-year renewable term
    • 10-year term
    • 15-year term
    • 20-year term (Most popular term)
    • 25-year term
    • 30-year term

    • Term to a specified age (usually 65)

It’s important to note that most life insurance companies will not sell term insurance to an applicant for a term that will end past his/her 80th birthday.

Is Term Life Insurance Right for Me?

So how do you know what term length you should purchase? Here are a few guidelines to keep in mind when looking to buy a term life insurance policy:

    • Choose a term that coincides with the years you’ll be paying large bills such as your mortgage, car note, business loans, student loans, and children’s education. Remember, just because you are deceased does not mean the bills go away. 

    • Buy an amount that would replace your income. Will your family need one year of your income to continue meeting regular expenses? Or will they need two years? Five years? Factor this amount of time into your decision.

As far as term life insurance premiums go, you lock in the premium for your age and health at the time of the application.

What Should I Do if My Term Life Insurance Policy Expires?

Term or Whole Life?

 

So you purchased your term life insurance policy for 10 years. The decade has flown by and now your term is up.

What happens next?

Well, that outcome is specific to the term life insurer and the way your particular policy is written.

There are a few different options.

If you have a renewable term life insurance plan, the coverage can be renewed annually (up to a specific age) with an increase in premium every year.

If you have a term policy that is convertible then you, as the policy owner, have the right to convert the policy into a permanent life insurance plan without additional evidence of insurability.

How Do Premiums Work on a Term Life Insurance Policy?

You may also be wondering what happened to all that premium you paid for the last 10 years. Your premiums on a term life insurance policy bought you protection during your term period.

Your premiums will not be refunded when your term ends. In the same way that auto or homeowner’s insurance works, the life insurer figures they provided protection to you that you needed for all those years but you just didn’t use it.

If you had a death claim then they would have willingly paid to your beneficiary the death benefit. Some insureds do not appreciate this term life insurance concept.

For that reason, a few life insurers have created term life insurance policies with a Return of Premium (ROP) rider because of insured complaints. The premiums for ROP term life insurance policies are usually much higher than policies without this feature. You also must keep the policy in effect and current until its term ends to avoid forfeiting the premium benefit.

Always review the fine print on your term life insurance policy so you understand how your specific term life insurance coverage works.

Can I Renew My Term Life Insurance Policy?

final expense life insurance


Let’s say your term is coming to an end and you can’t decide what to do next. Many people will convert the term life policy into a permanent life insurance policy.

If you aren’t able to do so (or don’t want to do so), then there may be a few other ways to renew your existing term life insurance policy without paying a huge premium increase.

 Have you lost a lot of weight? Stopped smoking? Or have you gotten your Type 2 diabetes under control and no longer need the metformin pills? 

If you have improved your health since you originally purchased the term life insurance policy then you should check with your insurance agent or life insurer to find out if you can do a “health re-classification”.

Many carriers allow an insured one opportunity to submit an application in which the insured will be re-classified based on his/her current health. This can lead to a really nice reduction in premium.

Many term life insurance companies will allow an insured to reduce their death benefit one time.

You can do this when the term is coming to an end and avoid the high renewal premiums. Although it’s only a good idea to do this if you can actually forgo the original death benefit amount.

If your family is still going to need that $100,000 policy then it doesn’t make much sense to reduce it now just to save a bit on premiums.

However, if finances have changed in your life since the original policy was purchased, perhaps it makes sense to reduce the death benefit and save some cash up-front.

If you are still healthy enough to qualify for a low-cost replacement term life insurance policy then go that route.

You can work with your insurance agent to find different or better term life insurance coverage than what you previously purchased.

Buying a new policy and receiving the new policy rate always saves in comparison to renewal premiums.

Once again, it’s worth mentioning that many individuals decide to convert their term life insurance policy into a permanent life insurance plan.

 

How is Permanent Life Insurance Different than Term Life Insurance?

Unlike a term life insurance policy that only lasts for a maximum of 30 years, a permanent life insurance policy provides protection for your entire life.

Your family will receive a death benefit no matter your age at the time of death. Many term life insureds smartly convert their term life insurance policies into permanent life coverage because of all the unique benefits.

For instance, permanent life insurance offers a tax-deferred savings element. Plus, permanent life insurance premiums stay the same throughout the years while a term may go up significantly every time it is renewed.

If your term life insurance policy is coming to an end, or you are looking for better coverage that will last your entire life, and also act as a savings vehicle, then permanent life insurance is right for you.

Permanent Life Insurance – Whole vs. Universal

 

lifetime term life insurance

 

There are four different types of permanent life insurance coverage: whole (ordinary) life, universal (adjustable) life, variable life, and variable universal life. The majority of consumers purchase either whole or universal life insurance coverage.

Whole or ordinary life insurance offers a death benefit and potential cash value. If you select a whole life insurance plan then you will have a set face amount (or death benefit) and set premiums. Over time, as you pay on your whole life insurance policy, the cash value will grow from dividends paid by the life insurer.

Universal or adjustable life provides more flexibility than whole life insurance. Universal life insurance allows insureds to increase the death benefit, secure savings at fixed interest rates and modify your future premium payments. To increase the face amount you will need to pass a medical examination.

Obviously, the life insurer wants to be sure that you were not recently diagnosed with a life-threatening illness and that is the reason for increasing the death benefit. The premium payments can be changed by you after you have accumulated enough cash value.

Keep in mind, you’ll need to have enough cash value to cover the costs. This is important to know because if you stop or reduce your premiums and the cash value becomes deplete, your life insurance policy could lapse.

 

Other important benefits offered by many permanent life insurers include:
    • Use the cash value to pay premiums as long as there is enough cash accumulated.
    • If unexpected expenses occur, you can stop or reduce your premiums.

    • As we mentioned earlier, you can borrow money from the insurance company using the cash value of your permanent life policy as collateral. 


Who is Term Life Insurance Best For?

 

For people who are looking for life insurance coverage for a specified period of time in their life, like while their children are still living at home, or for the remainder of their career, term life insurance is the right fit.

Term life insurance offers very affordable rates for healthy people who often times can’t be rivaled by that of other policies if bought at a young age.

While it does not build cash value, term life insurance serves its purpose well in protecting your family from financial loss in the event of your death.  Policies can start as low as $10/month and provide coverage upwards of $500,000.

How Much Does Term Life Insurance Cost?

While we can’t promise that these numbers will always be accurate for any given health classes, we have gathered some average rates you can expect for term life insurance.

Below is a chart displaying the cost of a $500,000 term life insurance policy for  10, 15, 20, 25 and 30-year terms. Males and females in this example are healthy, non-smokers, who are both 32 years old.

Term Male Female
10 Year $13/mo. $12/mo.
15 Year $15/mo. $14/mo.
20 Year $20/mo. $17/mo.
25 Year $27/mo. $23/mo.
30 Year $34/mo. $28/mo.

Below is a chart displaying the cost of a $500,000 term life insurance policy for 10, 15, 20, 25 and 30-year terms. Males and females in this example are healthy, non-smokers, who are both 42 years old.

Term Male Female
10 Year $21/mo. $19/mo.
15 Year $26/mo. $22/mo.
20 Year $35/mo. $29/mo.
25 Year $51/mo. $40/mo.
30 Year $63/mo. $49/mo.

As you can see, the older you are, the more life insurance rates go up.  For term policies especially, it is best to lock in low premiums early.

This gives you time to convert your policy into a whole life policy later in life if you so choose, or renew a policy if you are still young enough to obtain affordable life insurance coverage after it has expired.

The 6 Best Term Life Insurance Companies 

Here is a brief overview of our 6 Best Term Life Insurance Companies (Ratings as of :

Company A.M Best Rating Standard & Poors Rating
Banner Life A+ AA-
Protective Life A+ AA-
Pacific Life A+ AA-
AIG A A+
Prudential A+ AA-
Mutual of Omaha A+ AA-


1. Banner Life

banner life logo

 

Banner Life is known widely for their affordable coverage for people who are not in the best health conditions.

They also offer very competitive term life insurance rates that are almost always below most of the competition.

With terms ranging from 10-30 years, and renewable and convertible rider options, Banner Life is definitely one of the best term life insurance companies.

Banner Life Insurance Company Ratings

 

Rating Service Company Rate
A.M. Best A+
Standard & Poors AA-
Fitch AA-
Comdex Score 94

 

2. Protective Life

Protective Life Logo

Protective Life has been around for over 100 years in the United States.  Over this time, they have built quite the reputation as a life insurance and investment giant.

They offer some of the best term life insurance rates in the industry and also offer a wide array of whole life insurance offerings.

Protective Life Insurance Company Ratings

Rating Service Company Rate
A.M. Best A+
Standard & Poors AA-
Fitch A+
Moodys A1


3. Pacific Life

Pacific Life logo

Pacific Life has been around for over 150 years. In 2018, they mostly specialize in universal and whole life insurance, having the #1 spot in total sales for indexed universal.

They are also #1 in the industry in overall life insurance sales.  There is a reason for this. Pacific Life has a wide array of options and has been successful since their inception at helping customers find the best whole and term life insurance rates.

Pacific Life Insurance Company Ratings

Rating Service Company Rate
A.M. Best A+
Standard & Poors AA-
Fitch A+
Moodys A1


4. AIG

AIG logo

AIG has also been around for almost a century.  With a high financial rating, and a continuously successfully performing portfolio, AIG is another life insurance giant that offers a wide array of life insurance products.

Their term life policies in specific are very affordable and offer the ability to convert to whole life or renew the policy.

AIG Insurance Company Rating

Rating Service Company Rate
A.M. Best A
Standard & Poors A+
Fitch A+
Moodys A2


5. Prudential

Prudential is probably best known as a life insurance company for its ability to consistently get people the lowest rates possible by classifying them in the best health class possible.

For this reason, they have very affordable rates compared to the competition, even with applicants who have substandard health.  They offer 6 different term life policies, each with their own benefits, riders, conversion terms, and coverage.

This wide array of coverage allows for Prudential to be one of the best term life insurance companies year after year.

Prudential Life Insurance Rating

Rating Service Company Rate
A.M. Best A+
Standard & Poors AA-
Fitch AA-
Moodys A1


6. Mutual of Omaha

Mutual of Omaha logo

Mutual of Omaha has also been around for over 100 years. During this time, they have built a solid financial rating to combine with their impressive portfolio.

Mutual of Omaha offers some of the best no-exam term life insurance policies in the industry, making it fall just short of Banner Life and Prudential on our list.

Mutual of Omaha Life Insurance Company Ratings

Rating Service Company Rate
A.M. Best A+
Standard & Poors AA-
Moodys A1
Comdex Score 93 out of 100


How to Find the Best Term Life Insurance

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The best piece of advice anyone can offer you during the process of searching for the best term life insurance is to speak with an independent insurance agent.

The reason being, there are hundreds of options available on the market.  And while the internet can make searching for rates a bit easier, there are still a lot of details that need to be known about the insured’s needs, finances, and health in order to find them the best life insurance policy.

Speaking with an agent is entirely free, and can help you narrow down your choices from hundreds to a handful in a few minutes.

Please feel free to call the insurance professionals at LifeInsure.com at (866) 691-0100 during normal business hours or contact us through our website.

When it comes to planning for your family’s financial future, you want to understand everything you can about the choices available to you in order to make the right decision.

Speak with an agent today to get started!

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