Term Life Insurance

Term life insurance provides a death benefit for a specified period. If the insured dies during that term, the policy pays the beneficiary a predefined sum. When the term ends, the policyholder can typically renew the policy (with higher premiums), convert it to permanent coverage if the policy allows, or let it lapse.

Key takeaways

• Term policies pay a guaranteed death benefit only if the insured dies during the specified term.
• Term policies do not build cash value or an investment component.
• Premiums depend mainly on age, health, gender, and coverage amount.
• Common term lengths are 10–30 years; some insurers offer longer terms.
• Convertible term policies let you switch to a permanent policy without new underwriting (subject to policy terms).

How term life insurance works

Insurers set premiums based on the death benefit amount and personal factors such as age, health, smoking status, occupation, hobbies, and medical history. Applications may require a medical exam and records checks (driving, prescriptions, family history).

If the insured dies during the active term, the insurer pays the face amount to the named beneficiaries. Proceeds are typically tax-free and can be used for funeral expenses, debt repayment, mortgage, daily living costs, or other needs. If the policy expires while the insured is still alive, there is no payout.

Renewing a term policy usually resets premiums based on the insured’s current age. Some policies offer guaranteed renewability; others may include a conversion option to permanent insurance.

Cost

Term life is usually the least expensive form of life insurance because it covers a limited time and has no cash-value component. Example illustrative rates:
* A healthy non-smoker aged 30 might pay roughly $18/month for a 30-year, $250,000 term policy.
* At age 50, that same coverage could be around $67/month.
By comparison, a whole life policy (permanent coverage with cash value) costs substantially more for smaller face amounts.

Factors that affect cost:
* Age and health at application
Coverage amount and term length
Smoking or nicotine use
Occupation and hobbies (e.g., hazardous jobs)
Insurer pricing, investment returns, and state rules

Insurers often offer competitive pricing at common coverage breakpoints (e.g., $100k, $250k, $500k, $1M).

Example

George, age 30, buys a 10-year, $500,000 term policy for $50/month. If he dies during those 10 years, his beneficiary receives $500,000. If he survives and renews at age 40, premiums will be higher because they’re recalculated based on his older age.

Types of term policies

• Level-term (level-premium): Fixed monthly premium and fixed death benefit for the chosen term (commonly 10–30 years).
• Yearly renewable term (YRT): One-year coverage renewable annually without new underwriting; premiums increase each year with age. Best for short-term or very temporary needs.
• Decreasing term: Death benefit decreases over time on a set schedule (premium typically fixed). Often used to match declining mortgage balances.

Benefits

• Low cost for relatively large coverage amounts—useful for income replacement, mortgage protection, or protecting young families.
• Simplicity: straightforward death benefit without investment complications.
• Flexibility: can be timed to cover specific financial obligations (raising children, paying off a mortgage, business obligations).

Term vs. Permanent (whole/universal) insurance

Consider these main differences:
* Duration: Term covers a set period; permanent covers a lifetime as long as premiums are paid.
Cash value: Permanent policies accumulate cash value and may offer loans or withdrawals; term policies do not.
Cost: Term premiums are substantially lower for the same face amount.
* Renewability and underwriting: Permanent policies are not affected by future health changes (after issue). Some term policies can be converted to permanent without new medical underwriting if a conversion rider exists.

Permanent policies can function as both insurance and a tax-advantaged savings vehicle, but they typically produce lower investment returns after fees than many market investments. Many financial advisors recommend “buy term and invest the difference” for the insurance portion while investing separately for long-term growth.

Convertible term life

A convertible term policy includes a conversion rider allowing conversion to a permanent policy without proving insurability. Key points:
* Conversion is typically allowed up to a certain age or within a conversion period.
Premiums for the new permanent policy are based on the insured’s age at conversion.
Conversion preserves the original health rating, so later health changes won’t block conversion.
* Converting increases total cost because permanent coverage is more expensive.

Common questions

Q: Do you get your premiums back if you outlive the term?
A: No. Term life pays only the death benefit if the insured dies during the term. No refund is paid at expiration unless you bought a return-of-premium rider.

Q: Can seniors get term life insurance?
A: Many insurers offer term coverage up to an upper age limit (often in the 70s–90s range), but premiums rise substantially with age. Availability and price vary by company.

When term life is a good choice

Term life is a strong option if you need affordable, temporary protection—such as replacing income while children are dependents, covering a mortgage, or funding short- to medium-term business obligations. It’s less suitable if you need lifelong coverage, want an insurance policy that builds cash value, or plan to use the policy as a primary investment vehicle.

Bottom line

Term life insurance is an inexpensive, straightforward way to provide a lump-sum benefit to dependents if the insured dies during a specific period. It’s especially useful for young families and those with time-limited financial obligations. Evaluate term length, coverage amount, conversion options, and insurer reliability when shopping for a policy.