What is Term Life Insurance?

Disclosure: This is a sponsored post. 

If you’ve been shopping for life insurance you’ve probably come across options that fall into either “term life” or “whole life” and may be wondering the difference between the two. 

Term life is typically cheaper than whole life insurance, which makes it very appealing. 

This guide is going to cover the basic things that you need to know about term life insurance so you can decide if it is the best life insurance type for you. 

What is term life insurance?

As the name hints, term life insurance is a policy that covers you for a specific term of your life. 

For example, you can purchase term life insurance for anywhere between 10 to 30 years and some policies also have a maximum age limit of 80. 

The premiums are lower than whole life insurance but don’t build a cash value.

You can get term life insurance quotes to see if it would be a good option. 

To compare life insurance enter your age here.

Term life insurance requirements

While many view term life insurance as one of the simpler life insurance options you still have to go through an application process. 

The application process is what determines the monthly price you’ll pay and some insurers will also require that you undergo a medical exam to evaluate the current state of your health. 

Other than the application process and medical exam there are not many other term life insurance requirements

What are the pros and cons of term life insurance?

Deciding which life insurance is best for your situation can be tricky so here’s a list of the pros and cons of term life insurance. 

Pros of term life insurance

  • More affordable than whole life insurance
  • Tax-free death benefits
  • Flexible policy options
  • No cancellation penalties

Cons of term life insurance

  • It may not cover your entire lifespan
  • No cash value
  • Has an age limit on who can apply
  • May require a medical exam

What is the cash value of term life insurance?

Some life insurances such as whole life insurance, have a built-in cash value in addition to paying out a death benefit to your beneficiaries. 

Term life insurance doesn’t come with a built-in cash value so you cannot take a loan out against your life insurance policy if an emergency arises. 

Additionally, when the term comes to an end you won’t get any money back, but some insurers may have the option for you to convert it into a whole life insurance policy. 

How much should you pay for term life insurance?

When you decide to get term life insurance quotes and go through the application process the information that you enter is going to determine how much your rate is going to be in addition to the amount of life insurance that you need.

To determine how much life insurance you need you’re going to want to factor in expenses outside of funeral/burial costs too. For example, do you have a mortgage, small kids that will need help paying for college in the future, or other debts that will need to be handled when you pass away?

Plus, don’t forget about factoring in the fact that dying is expensive. Each year the cost to plan a funeral, or even do a cremation increases. 

Your loved ones will already be grieving your death, the last thing you want them to have to worry about is how they are going to handle your end-of-life wishes and any outstanding debts that you have. 

Life insurance is peace of mind for you and the loved ones that you leave behind. 

What can you do with a term life policy?

Term life insurance doesn’t build cash value so when you’re alive there is nothing that you can do with your term life policy. 

However, once you pass away the death benefit will be paid to your beneficiary and they will be able to cover your end-of-life expenses, and debts, and even use the money for everyday expenses such as groceries if they choose. 

Closing Thoughts

Term life insurance provides temporary financial protection of no more than 30 years for a more affordable rate than whole life insurance. Understandably, due to its affordability, it doesn’t come with all of the perks of whole life insurance but can be a great option for young adults, stay-at-home parents, and even single parents. 

Ideally, you’d want to go with a plan that allows you to convert it into a whole life insurance policy at the end of the term. 

Read Also: Smart Financial Moves For Parents

18 Comments

  1. My husband has life insurance I don’t. Its always great to be educated for something like this esp. it involves money.

  2. This is such a detailed and informative article about term life insurance! Thanks for sharing ❤️

  3. Lynndee says:

    I didn’t know all these things about term life insurance. Thanks for the deets. Good thing, my husband has whole life insurance.

  4. Very informative on a subject I can’t know very much about! It’s best to have options for sure

  5. I was not really familiar with what this is, and it is good to know some more about it. Definitely a good point to start thinking more about life insurance.

  6. This is something that I haven’t heard of before. I must do more research on it. to me life insurance is so confusing to me.

  7. So, if you pass after the term, then it’s no longer good? Is that what I am reading? Sounds to me like whole life insurance would be a better buy or am I missing something?

    1. Victoria H says:

      Hi Renee,

      Yes, term life insurance is good for usually no more than 30 years. However, it can be a good option for those just starting out if going with a policy that converts into a whole life policy. Term life is a more affordable option than whole life. So for those who can’t really afford whole life at the moment but want coverage just in case, term life insurance is a great option until they can afford the higher monthly payments.

  8. Catalina says:

    I didn’t know the difference between the term life and whole life insurance but I can say it’s definitely convenient for us!

  9. Life insurance is always a tough subject to consider because normally we assume nothing will take us away suddenly but it’s good to remember that just that can happen and it’s good to be prepared. It’s good to know our options, thank you for the link!

  10. Gervin Khan says:

    Wow! Such a great article to read to differentiate these two misconceptions about life insurance packages. It’s very informative, loved it!

  11. Thank you so much for explaining that so well! I don’t think term life insurance would be right for me – in fact, it seems that it really isn’t the best option at all for anyone!

  12. I had an insurance policy and let it lapse on accident because i got a new debit card. I never noticed the emails stating to update my payment info either. Long story short, I lost my policy and due to health conditions, they couldn’t reinstate my account. So get a policy when your young and pay it on time.

  13. Good information on a confusing topic. I would recommend everyone to read this before buying a policy.

  14. Lisa Charleston says:

    We just looked over this with our agent this past weekend. Great informative post and everyone should just take a look into term life insurance. It’s a great option in my opinion

  15. This helped me understand life insurance. I will have to talk with my husband about his through work.

  16. Amber Myers says:

    I have heard about this. I need to look into it because when my husband gets out of the military we’ll need some.

  17. I haven’t heard of term insurance before, but it’s great there are options. My husband has life insurance.

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