Term Life Insurance: Different Types, Best Companies, Rates, Pros & Cons

Last Updated: June 2020

Term life insurance is life insurance with an expiration date. This means you can outlive the policy.

It also makes term life insurance typically more affordable than permanent or whole life insurance. Term life insurance is the most popular type of life insurance policy.

Below, we’ll show you how term life insurance works, the different types of term policies, rates, companies, and more.

• What Is Term Life Insurance?
• Different Types Of Term Life Insurance Policies
• Benefits of Term Life Insurance Policies
• The Cons of Term Life Insurance
• Best Term Life Insurance Companies by Age
• Term Life Insurance Rates
• Alternatives to Term Life Insurance
• Should You Choose a Term Life Insurance Policy?

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What Is Term Life Insurance?

In short, term life insurance is a policy that guarantees a payout of a stated death benefit during a specific, predetermined term or time period.

Term life insurance is usually purchased as a 5, 10, 15, 20, 25, or 30-year term policy.

What Happens When Term Life Insurance Expires?

Upon expiration of this term, the policyholder has three choices:

1. Cancel the policy and go without life insurance
2. Renew the term. The policyholder can renew their policy once it has lapsed, but at this point, new premiums will be calculated based on factors such as the updated age, health, and lifestyle of the insured.
3. Switch to permanent coverage. Not all policies will offer this option.

The only value in the policy is the death benefit, which is guaranteed. Unlike whole life insurance, there are no built-in savings accounts or additional components. The sole purpose is to insure an individual against loss of life, and paying out a cash benefit if this incident occurs.

The benefit can be spent in any way the policyholder chooses, from settling the debts of the deceased to covering the cost of a funeral or long-term healthcare.

Term Life Insurance is the Most Popular Type of Policy

Term life insurance policies are popular primarily due to their simplicity and are often touted by all financial experts like Susie Orman and Dave Ramsey. All costs of underwriting are included in the premiums, so there are no unexpected costs or hidden charges along the way.

Term Life Insurance Coverage Amounts & Age Availability

The amount of coverage can range widely from provider to provider, with small amounts like $50,000 or less, to a million dollar life insurance policy.

Term life insurance can be purchased by young people and seniors. You can even purchase term life insurance for grandchildren under 18. However, term life insurance for seniors will be more expensive.

The premiums also tend to be lower due to this simplicity, making this an attractive option for earners of all income brackets and social groups.

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Different Types Of Term Life Insurance Policies

As we have stated, term policies are characterized by their simplicity, and there are three life insurance options, each with their benefits and disadvantages.

Level Term Life Insurance

This type of term life insurance is the most common. It has premiums (monthly payments) that remain level.

These options will provide coverage for a fixed period of between 10 and 30 years. The death benefit and the premium paid are both fixed, making this more accessible for those on a tight budget. Bear in mind that premiums tend to be higher, to allow actuaries to account for the rising costs of insurance over the life of the policy.

Yearly Renewable Term (YRT) Life Insurance

These are policies that are renewable every year and require evidence of your insurability in the form of medical exams or other tests. Premiums on these policies tend to be relatively low at the start of the policy, but tend to rise as the policyholder ages. This tendency can make them very expensive over a long period, and they are less popular as a result.

Decreasing Term Life Insurance

The death benefit of decreasing term policies declines each year, and this is set out at the beginning of the term. The premiums are fixed and level throughout the policy. This type of policy is popular for mortgages or other projects with depreciating values.

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Benefits of Term Life Insurance Policies

As we have discussed, term policies have several advantages over whole life insurance.

Term Life Insurance has Cheaper Premiums

One of the big appeals of term insurance policies is the lower premiums.

The majority of policies will expire before the policyholder has a chance to make a claim, meaning that there is a lower overall risk for the insurer, and they can pass this cost onto the customer with lower, more attractive premiums.

If the policy lapses before the insured person dies, however, there is no payout, and the insurance company has made a serious profit.

It Provides Short-Term Protection for Loved Ones

If you have needs that will disappear with time, or if you need a policy that lasts around thirty years or less, then a term insurance policy is the ideal choice.

For example, many people will opt for a term policy if they only need life insurance until their children are old enough to earn a living. If the main income provider were to die, the family would be in a precarious financial situation, so taking out short-term insurance is sensible, and more accessible than a long-term plan.

You Can Convert Your Policy Later

There is always an option for the policyholder to convert their policy to permanent or whole life coverage at any time, should they find they require extra coverage and protection.

This switch can be made while the term policy is in force with no downsides, and no need to show or prove that they are insurable. However, not all companies will offer this, and you may end up with more expensive premiums after the conversion. Read about if you should convert your term policy.

Term Life Insurance has Flexible Riders

The ability to add life insurance riders to your policy is one of the critical benefits of choosing a term policy.

Different variations of terms can be combined with the rider you need to suit your needs, like having a children’s rider, and this allows the creation of a personalized and tailored package that lets you pay only for what you need.

You Recieve the Full Death Benefit

Any benefits which are received as a result of death are not subject to state inheritance taxes or federal income, meaning there is one less thing for your family to worry about.

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The Cons of Term Life Insurance

There are some disadvantages to term life insurance which are important to consider.

You have Limited Coverage

The flexibility of term insurance can be one of the drawbacks. The future is impossible to predict, and you may shun the idea of whole life coverage only to discover that you have paid far more in term policies after 20 or 30 years.

Your premiums could fluctuate during this time, and there are no guarantees to retain affordability. It is impossible to say when you are taking out a policy how long you will need it, so sometimes it is easier to take out whole life coverage from the outset.

You Might Have Escalating Life Insurance Premiums

With each year that passes, the policyholder will continue to age, and the likelihood of developing additional health problems becomes increasingly likely. If you have a term policy with increasing premiums, this could be a problem.

The life insurance company has the ideal excuse to put up the premiums on an annual basis until they are spiraling out of control.

What may not seem to be an issue when you take the policy out as a young, fit twenty-something could increasingly become an issue as you carry on through your life.

Rising mortality charges play a big part in this. In these cases, premium costs are averaged until the age of around 95 or 100 years old, and the earlier payments more expensive to help reduce the cost of premiums later in life.

Term Life Insurance Offers No Chance to Build Up Capital

Unlike term life insurance, a whole life insurance policy offers not only the premiums which have been paid in during the life of the policy but any cash value which has accumulated.

This benefit can help you earn something from your premiums. While that return does seem appealing, there are plenty of investment options that cost less money and keep your insurance and investing separate.

You Might Pay Extra In Taxes

Another downside of term life insurance policies is that you often end up paying extra in tax. For every dollar you spend on a life insurance policy, the IRS will tax you.

A permanent life policy, on the other hand, will allow you to pay any morality charges directly from their asset portfolio or savings components, both of which are tax-free.

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Best Term Life Insurance Companies by Age

In general, these are the best term life insurance companies for each age group. However, it’s always best to compare multiple companies.

• 39 & Under: American National has great living benefits and conversion options for younger people.
• 40-49 Years Old: Protective Life Insurance has low term life insurance rates and great options if your term coverage expires and you still need some coverage.
• 50-59 Years Old: Lincoln Financial Life Insurance has great rates for higher coverage amounts during your highest income-earning years.
• 60-69 Years Old: Protective Life Insurance
• 70-75 Years Old: Banner Life Insurance
• 76 or Older: AIG Life Insurance

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Term Life Insurance Rates

Term life insurance rates will vary based on your age, health, and dozens of other factors. Below are sample rates for people in good health.

Term Rates for Men

Here are examples of term life insurance rates by age for a male, non-smoker, with “Preferred” (excellent) health.

Age	Policy Amount	10-year term	20-year term	30-year term
30	$250,000 $500,000 $1 million	$11 $17 $26	$15 $25 $42	$23 $39 $69
40	$250,000 $500,000 $1 million	$15 $23 $36	$21 $36 $64	$33 $60 $108
50	$250,000 $500,000 $1 million	$29 $51 $91	$46 $84 $160	$79 $151 $286
60	$250,000 $500,000 $1 million	$62 $117 $219	$120 $228 $463	$694 N/A N/A
70	$250,000 $500,000 $1 million	$210 $405 $767	$474 $852 $1,617	N/A N/A N/A

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Term Rates for Women

Here are examples of term life insurance rates by age for a female, non-smoker, with “Preferred” (excellent) health.

Age	Policy Amount	10-year term	20-year term	30-year term
30	$250,000 $500,000 $1 million	$10 $14 $19	$13 $20 $32	$18 $31 $56
40	$250,000 $500,000 $1 million	$13 $20 $30	$19 $30 $53	$26 $46 $86
50	$250,000 $500,000 $1 million	$24 $42 $74	$34 $62 $117	$59 $111 $210
60	$250,000 $500,000 $1 million	$41 $77 $152	$87 $166 $316	$694 N/A N/A
70	$250,000 $500,000 $1 million	$125 $242 $453	$326 $486 $919	N/A N/A N/A

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Alternatives to Term Life Insurance

There is no single best life insurance policy. People have different needs, and as a result, there are many types of policies. Here are other types of life insurance policies to consider in addition to term life insurance.

• Accidental Death Policy: An accidental death policy will pay your beneficiaries in the event of you suffering an accidental death. It is important to remember that no payout will occur if the policy elapses during your lifetime and that these types of policies do not cover death from illness.
• Whole Life Insurance Policy: Whole life insurance will last for your entire lifetime, rather than a predetermined period. They also offer cash value bonuses, an amount you can borrow against. They are usually more expensive than term life insurance.
• Universal Life Insurance: This option is similar to a whole life insurance policy in that it covers you for a lifetime, but a universal life policy tends to be more fluid and flexible. You will have options such as using your cash value to cover insurance costs and being more flexible with premiums. Because of this, these policies typically have higher premiums.

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Should You Choose a Term Life Insurance Policy?

A term life insurance policy is most attractive to young couples who have children, as it allows the parents to obtain a higher level of coverage for lower premiums and costs.

Since many people buy these policies online, make sure you consider the best life insurance companies, to make sure you avoid life insurance scams.

If a parent dies, the increased benefit can help replace the income which has been lost.

If you decide that by the time the policy has expired, your beneficiaries will no longer benefit from financial protection, you may choose a term life policy to benefit from the lower premiums with the bonus of a high payout.

Term life insurance is the most affordable, flexible, and convenient life insurance policy you can find. Use our quote tool or contact us to get quotes from all the top term life insurance companies.