Life Insurance

Why Do I Need Term Life Insurance?

Think you need life insurance, but struggling to decide whether you should purchase term life insurance or not? Let Insurify’s guide to term life insurance help you out.

In short, term life insurance pays a death benefit (a predetermined amount of money) to your dependents should you pass away during the policy term. Unlike permanent life insurance, term life insurance does not last forever. However, it is almost always cheaper and, for many people, the best option.

Once you pick a policy amount and time period for coverage, you can start getting quotes. With online insurance comparison site Insurify, you just need to answer a few questions and then you can compare offers side by side.

How Term Life Insurance Works

Term life insurance works by covering you for a length of time of your choosing—usually 10, 20, or 30 years. If purchasing term life insurance, you should choose a term that covers the years for which your family will need financial support most. This is often when children are growing up and you are paying off a mortgage and other debts, such as student loans. If you pass away during the term, your beneficiaries receive the guaranteed death benefit. If you don’t, your contract with the insurance company ends at the end of the term and they keep the money you paid them over the years. Though this may seem unfair, it is the primary reason term life insurance policies are so much cheaper than permanent life insurance policies.

As long as you pay the monthly premium, you remain protected. However, a lapse in payment has the potential to terminate your policy. This would leave you without insurance and needing to apply for a new policy, which would likely be more expensive. Making your life insurance premium a priority payment will help you avoid any missteps.

Life insurance, term or otherwise, is especially important during those periods in life. If you were to pass away, your debts and any bills you covered would be passed on to your family. Life insurance makes it so that these costs won’t burden your loved ones.

Varieties of Term Life Insurance

You know that life insurance policies fall into two general buckets—temporary (term) and permanent. But did you know that not all term life insurance policies function in the same way? There are five types of term life insurance, each with their own unique features.

  • Guaranteed Level Term Life Insurance: This is the most common form of term life insurance. Its main characteristic is a set annual premium that does not change during the life of the policy. As long as you pay the premium, your beneficiaries will receive the guaranteed death benefit in the event of your passing.
  • Annual Renewable Term Life Insurance: This is for people with a very short life insurance need. Each policy only lasts a year, after which you can renew or not, but your premium could increase. It is typically more expensive than guaranteed level term life insurance.
  • “Return of Premium” Term Life Insurance: This type of life insurance is for those who don’t want to invest in a policy without at least some guaranteed level of return. “Return of premium” means that the insurance company provides a refund of premiums for people who don’t die in the term. Because of this refund feature, though, it costs more than a standard guaranteed level term life insurance plan.
  • Decreasing Term Life Insurance: The death benefit in these policies decreases over time, but the annual premium stays the same. This type of policy is good for customers who want to cover a specific amount of money, such as a mortgage.
  • Modified Term Life Insurance: This is a type of policy with an alternative payment structure. These policies can have premiums that increase or decrease over time, while offering the same protection as a standard life insurance plan. These plans require more planning and careful consideration than the typical guaranteed level term policies.

Cost of Term Life Insurance

Term life insurance is much more affordable than permanent forms of life insurance, such as whole life insurance. Term life policies offer the maximum coverage for least amount of money. If you are younger and in good health, you are typically eligible for much lower rates; assuming you get the standard level term life insurance, these rates won’t change for the length of your term.

For the majority of situations, 10- to 30-year guaranteed level term policies suffice.

Term or Permanent Life Insurance—Which Should You Choose?

The main benefit to whole life insurance is that it has a cash value and lasts your entire life… although it comes with significantly higher costs. For most shoppers, term life insurance is sufficient. However, if you want to know more about the distinctions between policy types, there is a lot of information out there to help you learn. Depending on your current situation and personal preferences, though, there are a few key distinctions that might make one better than the other for you.

Term life insurance is probably better for you than permanent life insurance if you don’t have dependents who will need financial support for their entire lives, such as a special needs child, don’t plan on leaving a financial legacy for your family or charity, and don’t expect to die with an estate that would leave your family with an estate tax burden.

How to Buy Term Life Insurance

  1. Shop around and compare
    • Now that you have decided to get term life insurance, you probably want to compare quotes. Websites like Insurify make this easy—just answer a few questions, and in minutes you can compare accurate, real-time quotes side by side.
  2. Check provider rating
    • Because going for the cheapest rate possible is not always the best option, you want to make sure to research each insurance provider to confirm that it is a stable company that will be around for years to come.
  3. Apply for coverage
    • Hooray! You found a quote you like from a provider you trust and now you want to buy it. The first thing you have to do is fill out an application. Most providers allow you to do so online.
  4. Get medical exam
    • Getting a medical exam, though not always required, is a way for insurance companies to determine your risk profile, and therefore potential cost to the carrier. Not all insurers require you to get a medical exam before making a decision about your application, but many do. If the insurer determines that you are low enough risk (in other words, reasonably healthy), an exam may not be necessary. However, even if you are in good health, an exam to quantify that could help you get lower rates. In the case that you need or want an exam, it can often be done at your home, work, or a medical facility. There, the exam will include height, weight, and blood pressure measurements, a blood test, and a drug test.
  5. Purchase Policy
    • Assuming your application is accepted, you can now purchase the policy. To ensure continued coverage, make your life insurance payment a priority each month. As aforementioned, a lapse in payment could terminate your plan, and you probably won’t qualify for the same rate if you have to reapply.

Congratulations! You have decided to take a big step in protecting your loved ones. You should now have a better understanding of the coverages and limitations of term life insurance and can make an educated decision moving forward.

If you want to learn more, check out the Insurify blog, and if you want an easy way to compare quotes side by side, you are just a few questions away. Once you purchase the policy for you, sit back, relax, and enjoy that newfound peace of mind.

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Sabrina Perry is a writer with experience in data journalism and a passion for translating complex topics into insightful and engaging stories. She has a degree in neuroscience from University of California, Santa Barbara and can often be found reading books about behavioral economics, decision-making, and personal finance.