What are the benefits of term life insurance?

If you’re shopping for life insurance, it’s important to understand the benefits of term life and how it differs from other types of life insurance. People often delay purchasing life insurance because they think it’s more than their budget can handle, and they often overestimate how much it will cost. In fact, according to LIMRA’s 2025 Insurance Barometer Report, Americans ages 18–30 overestimate the annual cost of a typical life insurance policy for themselves about 10 – 12 times more than the actual cost.¹ Term life can be an affordable way to get the coverage that you need.

You may have heard term life insurance referred to as a temporary life insurance policy. This is because a term life insurance policy provides coverage for a certain period of time, or a specified "term" of years. If you were to die during the time period specified in your policy (and the policy remains in force), then a death benefit would be paid out.

Advantages and benefits of term life insurance

Term life insurance is a popular choice for individuals seeking financial protection for their loved ones. For example, a parent may purchase term life insurance for a period of 20 or 30 years to ensure that their spouse and children are financially protected in case the unthinkable were to happen while children were still school-aged. It’s important to understand the benefits of term life insurance and how it works in order to make an informed decision about coverage.

Affordability

One advantage of term life insurance is that it’s generally more affordable compared to permanent life insurance policies. The lower premiums make it accessible to a broader range of individuals. According to LIMRA’s Insurance Barometer, healthy adults ages 18–20 overestimated the median cost of a $250,000, 20-year level term policy by 10–12 times the true cost.² Term coverage may be more affordable than you think.

Customizable coverage

Another advantage of a term life policy is that both the term and coverage amount are flexible to meet an individual’s specific needs at their particular stage in life. Coverage amounts range from $100,000 to several million. Term life insurance is also offered for various terms, typically from 5–30 years. For individuals primarily concerned with replacing income for a young family, they may need coverage for only 20 years until their children reach adulthood. Or the insured may wish to ensure their spouse could pay off the mortgage on the house in case of their death, or that school-aged children could have access to a college education in case of the untimely death of a parent.

The structure of term life policies makes it easy to tailor a policy to meet specific financial goals and stages of life, which is another benefit of this type of life insurance.

Temporary protection

Term life insurance is designed to offer temporary coverage for a specified period of time. This makes it the ideal solution for individuals who can define a specific need for financial protection for a defined period of time.

Tax-free death benefit

In case of a death of a spouse or parent, the last thing those left behind need is a complicated tax event to sort out. Generally, death benefits from term life insurance policies are tax-free. This means that the beneficiaries receive the full amount of the proceeds to help them financially recover.

Flexibility

It’s not easy to know what life changes the future will bring. Fortunately, many term life policies offer flexibility to meet evolving needs over time. Many policies contain a provision that outlines timeframes and processes for converting a term policy to a permanent policy. Check with your financial professional or insurance company to understand these provisions. If you recognize early on that you may want to convert your term policy, you may also be able to purchase a rider to the policy that allows for this conversion, often without a new medical exam. This flexibility can be extremely helpful as your life stage changes.

What is the primary purpose of term life insurance?

One of the many benefits of a term life insurance policy is that it provides financial protection for loved ones over a period of time when they need it most. The following are just a few of the situations that may call for protection provided by a term life policy.

Income replacement

In many cases, income replacement is critical for young families when the burden of caring for children and bringing in an income would be extremely challenging for a single spouse. According to LIMRA’s Insurance Barometer, nearly half (47%) of respondents said they would have difficulty covering living expenses for six months if the primary income earner in their household passed away.³ Income replacement is a common reason to purchase life insurance.

Covering final expenses

The death benefit from a term life insurance policy can be used to pay for funeral expenses and/or final medical expenses, helping relieve financial burden at a very difficult emotional time. The national median cost of a funeral is $7,848.⁴ So if the death benefit on a term policy were $100,000, then loved ones could put, say, $10,000 toward final burial expenses and the have $90,000 to cover medical expenses and other financial responsibilities.

Paying off debts

When a loved one dies, often the next-of-kin can be held responsible for debts, particularly in the case of a spouse who may have been co-listed on accounts. Life insurance proceeds can be extremely helpful for paying off debts such as a mortgage, credit card debt, car loans and other loans. This can free next-of-kin from having to assume financial burdens.

The life insurance death benefit could also enable a loved one to pay off the mortgage on a home, ensuring their ability to stay in your home. A term life policy may also be on a divorced parent to guarantee the continuation of alimony payments in case of death. Any number of situations may call for protection of a term life policy.

Funding education

Higher education can be extremely expensive. If the primary breadwinner in the house passes away before children have a chance to start or complete college, life insurance proceeds can help ensure they are able to pursue the education that you always planned for them.

Business uses

Term life insurance can also be used to protect businesses in case of the loss of a key executive. For example, in the case of a partnership, a term life insurance on each owner would allow the surviving owner to buy out the deceased owner’s shares with the proceeds from the life insurance.

Alternatively, the death benefit could be used to pay off debts incurred by the business. Proceeds can also be used as a source of capital to be invested and accessed over time to make new hires or make other investments to grow the business.

Key takeaways

For many, life insurance can feel like just another expense — until you really need it. But even if you have a budget that can't budge much, term life insurance could be a cost-effective solution to get the insurance coverage you need now. Consider your critical coverage needs at this stage of life and a few years in the future. Ask yourself some critical questions to determine if a term life insurance policy could benefit you:

• What kind of funds would be required to keep your loved ones going?
• Would your spouse be able to continue making payments on the house?
• Would your business partner be able to keep the business open if you were to die?

Find out how much a term policy would cost by getting a quote online.

 

1. LIMRA, Life Happens 2025 Insurance Barometer Report.

2. LIMRA, Life Happens 2025 Insurance Barometer Report.

3. LIMRA, Life Happens 2025 Insurance Barometer Report.

4. National Funeral Directors Association, Statistics, September 24, 2024.

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