A term life insurance policy is the simplest, purest form of life insurance: You pay a premium
for a period of time – typically between 10 and 30 years Term life insurance offers a death benefit,
which is intended to help your beneficiaries replace your income if you pass away. For example,
the money can be used to help pay for things like a mortgage, education costs or everyday
expenses, such as groceries
At the end of the day, only you can decide how much term life insurance coverage you want to buy — and how long you need it to last. While the typical rule of thumb is to buy a policy with a death benefit of at least 10 times your current income, you may want to invest in term life coverage with an even higher death benefit, perhaps as much as 20 times your income or more, depending on your needs.
This means that someone who earns $50,000 per year would want to purchase at least $500,000 in term life insurance, but potentially closer to $1 million or even more. Meanwhile, a high earner who brings in $100,000 per year should buy at least $1 million to $2 million in term life insurance coverage.
As you shop around for term life insurance, factors to keep in mind include:
Your current income that needs to be replaced when you’re gone.
How long you want coverage to last How many dependents you have and their future needs.
Debts you have that will need to be paid off, including mortgage debt, car loans, credit card debt and medical bills.
The cost of your final expenses.
Term life insurance is one of the most affordable types of life insurance.
Your beneficiary receives a tax-free death benefit if you pass away during the term.
Unlike permanent life insurance, term policies are only active in the years you need it most.
The payout can be used for anything your family needs: funeral costs, debts, tuition, etc.
Premiums can cost a fraction of what consumers pay for permanent life insurance.
You can get more coverage for your money
You can tailor the length of the policy to your needs.
You can buy term life insurance online, possibly even without a medical exam.
On average, life insurance rates are more affordable for term than whole life insurance because term policies offer coverage for a predetermined time. If you outlive the term and the policy expires, your beneficiaries don't receive the death benefit, so it's less of a risk to the insurer.
The death benefit for your policy ends when your policy period is over, meaning you may not have coverage for your entire lifetime.
Term life insurance policies don’t build cash value or have an investment component.
You’ll usually need to meet health and age requirements to qualify
While term is often the cheapest form of life insurance, there are some negatives to buying coverage. The policy doesn't build cash value, has no surrender amount if you cancel, and, if you have to renew, your premium is adjusted based on your current age and health, which can mean much higher rates.
When choosing term life insurance coverage, the length of the policy is going to be your primary concern. But there are also some additional variables to consider when it comes to term life, as there are several types of term life policies:
Level term life insurance charges the same premium for the entire life of the policy, and your beneficiaries will receive the same death benefit amount if you die while the policy is in force.
