Many People Shopping for Life Insurance Wonder What is Term Insurance and How Does It Work?
If you’re in need of life insurance to protect your loved ones for a limited period of time, term insurance may be the option you are considering when it comes to life insurance.
Why term insurance? It’s simple, because it offers you the maximum amount of protection at the lowest price for a specific period of time.
Term life is temporary life insurance for a specific, pre-defined period of time, which is the "term" of your life insurance policy.
With a term policy, you choose how long your coverage will last to meet your specific needs.
You can select coverage for a duration of 10, 15, 20, 25, or 30 years, depending on your age.
If you pass away during the "term" of your coverage, the insurance company pays out a death benefit to the beneficiary (person you choose) of your life insurance policy.
If you are alive when your policy term ends, there is no payout on your policy, and no return of premiums paid.
Term life is "pure protection", which means you only pay for the insurance, there is no investment feature, no cash value in your policy, and no loans available.
Example of Term Insurance
10 year $250,000 life insurance for 35 year-old male for $375 per year.
In the above example a 35 year-old man pays $375 per year each year for 10 years and in return has $250,000 of life insurance protection.
If the man dies before the ten-year period ends, the insurance company pays out $250,000 to the person or persons named as beneficiary in the life insurance policy. The money is paid out free from federal income tax.
Term Life is the Cheapest Life Insurance
Why is term insurance the lowest priced type of life insurance policy?
Term insurance offers the lowest prices for a few simple reasons:
How Much Life Insurance Do You Need?
Use our life insurance needs calculator to help you decide.
Types of Term Insurance
There are several different types of term insurance plans available, including:
Renewable Term Insurance
A renewable term life policy continues in force for a specified duration, usually increments of one or five years.
It can be renewed without the insured having to take a physical examination or provide any other evidence of good health or insurability each year. The premium for a renewable term policy is usually based on the insured’s current age at time of renewal.
Level Term Insurance
Level term life insurance policies provide a fixed amount of coverage with premiums that remain the same over a certain period of time, usually 5 to 10 year increments.
Common durations for level term insurance include:
There are also policies that set term coverage to last to a specified age (usually 65 or 70).
Convertible Term Insurance
Convertible term life insurance gives policyholders the right to exchange their term policy for a permanent or cash-value policy, without a required medical exam or other evidence of insurability.
However, converting a term policy into permanent coverage may result in much higher monthly premiums.
Return of Premium (ROP) Term Insurance
In most types of term life insurance, there is no return of premiums if the insured person outlives the duration (term) of the policy.
However, return of premium term insurance gives back to policyholders the amount of premiums paid at the end of the policy term, minus any administrative charges, fees or other costs.
Monthly premiums for return of premium term policies are usually much higher than for term policies without the repayment feature.
Term Insurance Quotes
Top Pick – JRC Insurance Group
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Highly Recommended – Haven Life
Haven Life uses the information provided in your application to make an instant decision on your application. Healthy, qualified applicants (based on the information provided in your life insurance application) can be insured immediately with no medical exam while other applicants can receive immediate coverage pending a medical exam.