The Complete Guide to Buying Term Life Insurance: Key Insights and Expert Tips

Term life insurance offers peace of mind, providing financial protection for your loved ones at a fraction of the cost of permanent policies. This guide simplifies the process, helping you make informed decisions effortlessly.

By the end of this guide, you’ll understand everything about term life insurance – from its benefits and drawbacks to expert tips for selecting the best life insurance policy tailored to your needs.

Term life insurance provides coverage for a set period, typically 1 to 40 years. If you pass away during the term, the life insurance company pays the death benefit to your beneficiaries. It’s a straightforward way to get the most coverage at the lowest price.

• Fixed term lengths from 1-40 years
• Level premiums during the term
• Guaranteed level death benefit
• Conversion privilege to permanent life insurance
• Life insurance riders to customize coverage

Term life insurance is ideal for families and individuals needing coverage for mortgages, education expenses, or income replacement. It’s a great option for high-risk life insurance cases due to lower premiums than permanent coverage.

The process begins by requesting a life insurance quote, answering underwriting questions, and reviewing coverage options. You’ll choose the best life insurance company, complete an application, and decide on coverage amount and term length.

Beneficiaries, life insurance riders, and settlement options are also selected.

Many insurers now offer no-exam life insurance for $500k – $3 million. After underwriting approval, your premium and death benefit remain locked in for the term length chosen. Coverage applies to natural causes, health issues, or accidents.

Our Life Insurance 101 guide covers the above in greater detail.

Term life insurance has advantages and disadvantages compared to universal or whole life insurance.

Advantages:

• Affordability – Maximum coverage at minimal cost.
• Flexibility – Tailor term lengths to your needs.
• Simplicity – Easy to understand and manage.
• Customizable – Add riders for personalized coverage.

Disadvantages:

• Expiration Risk – You may outlive the policy term.
• No Cash Value – No returns when the term ends.
• Renewal Costs – Premiums rise significantly after the term expires.

Evaluate your financial obligations to select the right policy.

Policies are often renewable to age 90-95, premiums rise substantially or the death benefit is significantly reduced at the end of the term to keep premiums lower.

Here’s an example of what happens at the top term life companies when the level term ends.

Most policyholders choose to replace or convert the policy to avoid the high renewal costs.

Matching your policy to your financial needs:

• Income Replacement – Cover 10-25 years of your salary.
• Mortgage – Align the term length with your loan duration.
• Young Children – Provide coverage until they reach adulthood.
• Retirement Planning – Extend coverage to your retirement age.

Speaking of retirement, term life is sometimes used for pension maximization strategies where you take the maximum benefit and provide life insurance to replace the survivor benefit.

According to life insurance statistics, the 20-year policy is the most popular, but choose carefully, as policies are rarely kept beyond the level term period.

Life insurers offer many durations, from 1 to 40 years. One life insurer, AIG – Corebridge Financial, offers 16 – 30 years in one-year increments.

Bottom line – Choose your policy carefully because you won’t keep the policy after the level period.

A variety of term lengths are offered, but availability varies by company.

Additional highlights:

There was a lot of interest when 40-year term life insurance became available with Banner Life and Protective Life. The problem with it is the price as it just may not be worth it. Here are some examples comparing 30 to 40-year term life policies.

Bottom line – a 40-year term makes sense for very few people and I believe that’s why no other companies offer this term length.

Many insurers provide detailed consumer guides:

• Corebridge Financial
  • Select A Term Consumer Guide
  • QoL Flex Term Consumer Guide
• Costco
  • Member Advantage Consumer Guide
• John Hancock
  • Vitality Consumer Guide
• Pacific Life
  • PL Promise Consumer Guide
• Protective Life
  • Classic Choice Consumer Guide
• Prudential
  • Essential Term Consumer Guide
  • Term Essential Consumer Guide
• Transamerica
  • Trendsetter Super Consumer Guide
  • Trendsetter LB Consumer Guide

A term life insurance policy may be converted to whole or universal life insurance with no additional medical underwriting. A conversion privilege is a great option to have in case you develop significant health issues in the future but still need coverage.

• No medical exams or underwriting is required.
• Retains your original health rating.
• Offers lifetime coverage and potential policy flexibility.
• Partial conversions are possible, allowing customization.

• Higher premiums due to permanent coverage and current age.
• Limited conversion options with older policies.

The conversion process is simple – Review the conversion illustrations (we’ll prepare them for you) and complete a simple application. The timeframe for completion is 1-2 weeks.

Whole life insurance is a permanent life insurance policy that offers lifetime protection, cash value accumulation, and dividends with some policies. Whole life insurance may be used for estate planning or to help supplement retirement income.

Universal life insurance is permanent life insurance designed to provide guaranteed death benefits to age 120, cash value accumulation via fixed interest rates, or interest tied to stock index performance.

Pricing for universal life insurance policies tends to be more competitive than whole life, and these policies may provide loans used to supplement retirement income.

You may encounter other types of coverage and wonder how your life insurance policy compares to other options available.

Group life insurance is a benefit commonly provided by employers, often including a base policy of around $50,000 at no cost to you. Employees typically have the option to purchase additional coverage through the group plan, often at competitive rates.

With group life insurance, the base amount given to employees for free is great and should be accepted. Otherwise, you should buy your life insurance outside of work.

Some organizations offer life insurance programs to their members. The policies may offer some benefits and discounts that make the coverage attractive.

Examples include the AICPA Term Life Insurance program and the Costco life insurance offer.

When comparing term vs. mortgage policies, the premiums for both policies remain level for the term. The difference concerns the coverage amount and how it gets paid out. Mortgage life insurance coverage decreases yearly with your mortgage, but your premium remains level, and the death benefit gets paid directly to the mortgage company if you die.

If you would like to get money back from your term life, an ROP – Return of Premium policy may be a good fit. With the ROP, the life insurer refunds all premiums you pay at the end. ROP may sound like a good deal (and it can sometimes be), but remember that your ROP will be more expensive.

Ready to secure your financial future? Get your personalized term life insurance quote today!

Final Thoughts

Term life insurance is a simple, cost-effective way to protect your family’s financial future. With its affordability, flexibility, and ease of understanding, it’s a great choice for individuals and families with temporary coverage needs.

Take the time to evaluate your obligations, and explore optional riders to enhance your policy. Whether you need a short-term safety net or a stepping stone to permanent coverage, term life offers the peace of mind you deserve.