You work hard to make sure your loved ones are cared for, but have you considered what would happen to them if you passed away unexpectedly? While it's never easy to think of worst-case scenarios, it is a good idea to be prepared. Term life insurance can provide financial support if something happens to you. Get an overview of term life insurance, including pros and cons, key considerations and how to apply.
Definition of term life insurance
Term life insurance provides your loved ones with financial protection for a specific number of years, generally between 10 and 30 years. They'll receive a death benefit if you pass away while the policy is in force. The death benefit is money the insurance company will pay out to beneficiaries upon your death. Beneficiaries can use this money to help pay household bills, a mortgage or outstanding debts.
With term life insurance, you choose the coverage and term length that best protects your financial obligations or lifestyle. In many cases, someone may seek out financial protection with term coverage when they experience a big life change, such as getting married, purchasing a home or having children.
Benefits of term life insurance
The benefits of term life insurance make it a popular option for people who want straightforward, affordable coverage they can count on to protect their loved ones.
Affordability
Over 50% of consumers are concerned that term life insurance is too expensive and 72% overestimate the cost of premiums.¹ The reality is that term life insurance is generally considered one of the most affordable types of insurance. For instance, a 30-year-old could buy a 30-year term policy for less than $25 a month.²
When selecting your term insurance policy, you'll be able to choose the frequency of payments, whether monthly, quarterly, semi-annually or annually. For most types of term policies, your premium payments will remain the same, regardless of the term length. Predictable payments are helpful for financial planning, especially for budget-minded individuals or families.
Financial protection
Term life insurance provides a safety net by paying out a death benefit amount to your beneficiary upon your death. The payout can be a lump sum or a series of payments and are generally tax free. Your policy's death benefit can support several term life insurance uses, such as:
- College tuition
- Funeral expenses
- Household expenses
- Mortgage and car payments
- Outstanding debts
- Weddings
Flexible coverage periods
Term life insurance has flexible term lengths, generally for 10-, 15-, 20- and 30-year periods. Depending on the insurance company, you may be able to choose more specific coverage lengths, such as one, 5 or even 40 years. Many individuals select a term period to match the length of their biggest or longest financial obligation.
For example, a young couple with a new home may want to consider a 30-year life insurance policy to help cover mortgage payments. A family with children in high school may benefit from a 10-year policy to help pay for college tuition.
Disadvantages of term life insurance
Unlike permanent insurance options, term life insurance does not accumulate cash value and, in general, does not refund premiums after the policy expires. If you are living at the time the policy expires, your beneficiaries will not receive a cash payout.
Extending term life insurance past its expiration often means you will pay higher premiums to renew. Additionally, term life insurance may not be a good option for older individuals seeking temporary coverage as premiums will be higher.
Who should consider term life insurance?
You may want to consider term life insurance if you have dependents who rely on you for financial support or if your death would leave a significant financial burden. Term coverage can be helpful for:
- Family with dependents
- Homeowner with a mortgage
- Individual seeking affordable coverage
- Small business owner
Choosing the right term life insurance policy
Understanding how term life insurance works can help you better determine what coverage will best fit your goals and financial needs. Do you have a new mortgage? Are you on a specific budget? How many people do you financially support? These are all considerations to take when choosing the right term life insurance policy for you. Additional considerations include:
- Term length
- Coverage amount
- Outstanding debt
- Anticipated expenses
- Insurance company
- Policy features and riders
- Conversion options
Applying for term life insurance
Getting life insurance is a straightforward process that can be completed in a few simple steps.
- Select a coverage amount and term length. These should match your financial obligations and provide a suitable level of financial support for beneficiaries.
- Choose one or more individuals as your beneficiaries. It's important to thoughtfully consider who your beneficiary or beneficiaries will be and to review these designations regularly.
- Submit your term life insurance application. This generally includes a basic questionnaire and medical exam. The insurer will complete the underwriting process to assess your risk and an application review to determine your premium rates.
- Wait for approval. If your application is approved, you'll be able to review all documents and activate the policy by completing your first premium payment.
Get a term life insurance quote today
Getting a term life insurance quote from Protective is fast and easy. Simply fill out the questionnaire with basic personal information and health details to get a quote.
Term life insurance FAQs
Do I get my money back at the end of term life insurance? With a standard term life insurance policy, the insured will not get money back if they live past the policy's expiration. Certain term life insurance policies may come with a return-of-premium rider. This rider guarantees the insured will receive a refund on paid premiums if they're living when the policy expires.
Can I cash out my term life insurance policy? No, you cannot cash out a standard term life insurance policy. Term life insurance is meant to provide temporary coverage and a death benefit if the insured passes away before the policy expires. It does not build cash value like a whole life insurance policy.
How does term life insurance work? Term life insurance provides temporary insurance coverage for periods of life when loved ones financially rely on you. Coverage terms generally last between 10 and 30, offering financial protection that can help pay for household expenses, a mortgage, college tuition and more.
Which is better, term life or whole life insurance? When comparing whole life vs. term life, determining which is better depends on your specific goals and needs. Term life insurance provides a death benefit paid out to beneficiaries if you pass away while the policy is active. Whole life insurance is permanent life insurance that provides coverage for your entire lifetime. It provides a death benefit and also builds cash value that can be borrowed against or withdrawn while the insured is living.
Can a term life insurance policy be converted? Yes, depending on your policy and insurance company, you can usually convert a term life insurance policy to a permanent one, though there may be limitations. In some cases, term policies can be converted without having to provide evidence of insurability, like a medical exam. If you choose to convert a term policy, you most likely will pay higher premiums for permanent coverage.
Can a term life insurance policy be renewed? Yes, you can renew your term life insurance after it expires, generally on a year-to-year basis. You generally won't need to provide evidence of insurability or undergo the underwriting process when renewing a current policy. However, your premiums most likely will increase. Renewing your term life insurance policy may be beneficial if you've been diagnosed with a serious health condition that would reduce your chances of getting a comparable permanent life insurance policy.
Get a term life insurance quote from Protective
Interested in seeing an estimate of your coverage costs? Start by getting a quote.
¹ LIMRA and Life Foundation 2024 Insurance Barometer Study.
² Protective Classic Choice term policy, 30-year guarantee, Preferred Non-Tobacco, $250,000 death benefit. Premiums increase annually after the initial guaranteed premium period.
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