Term Life Insurance
What is term life insurance?
Term life insurance is the cheapest, simplest type of life insurance. Term life insurance is temporary, meaning that a policy of term life insurance provides coverage for only a certain number of years. (You can choose 1, 5, 10, 15, 20... depending on the life insurance company.) Any life insurance policy that is not a term policy is permanent life insurance.
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How term life insurance works
Term life insurance includes the attributes common to all life insurance policies. To review these, read How life insurance works.
A standard term life insurance policy guarantees fixed premiums. That means that the size of payments made to the life insurance company does not change over time. The policy owner makes payments, all of equal amount, at equal intervals of time (monthly, quarterly, semi-annually, or yearly, depending on the company and policy). The policy owner is free to discontinue payments at any time; if he/she does so, however, the policy will terminate (i.e. the life insurance company is no longer obliged to pay a death benefit).
A standard term life insurance policy guarantees a fixed death benefit. That means that the death benefit will be of a certain amount regardless of how long the policy has been in force. The insurance company will pay the same amount if the insured dies during the first day of coverage as if he/she dies during the 29th year of coverage.
Term life insurance policies provide temporary coverage. For example, a 20-year policy is intended to provide coverage for 20 years and no longer. However, there are exceptions to this temporary character.
At the end of the term...
You might imagine that your life insurance is simply gone at the end of your term of coverage: if the insured is still alive, your beneficiary gets nothing. That's not a bad thing; after all, a healthy, living person is preferable to a cash payment. However, there are usually alternatives to letting your coverage simply cease.
Most term life insurance policies simply don't terminate after the "term of coverage." You can keep paying premiums and keep enjoying coverage. However, after the specified term of coverage, the rates you pay are no longer fixed at the level they were. Your contract will probably stipulate new rates much, much higher than you were originally paying. This alternative may be worth the higher rates, however, if your insured is ill and not far from death. Continuing your "temporary" life insurance is typically allowed only until the insured attains a certain, advanced age (often 90 years old).
Another option is conversion. Conversion means that your life insurance company will replace an existing term life insurance policy with a permanent life insurance policy of the same face amount death benefit). Life insurance companies tend to offer at least one, but it may not be a desirable one. For instance, your only option may be to convert to a permanent policy whose rates are guaranteed for only a decade. Moreover, you may not be able to exercise the conversion option at just any time. For instance, conversion may only be allowed during the first five years of your term life coverage.
A final option is renewal, but this option is comparatively rarer than the preceding options. Renewable life insurance can be replaced with a life insurance policy of the same type, face amount, and health class. Renewing life insurance spares you the hazard of being assigned to a more expensive health class. However, life insurance rates trend downward so long as life expectancy trends upward, so unless the health of your insured has deteriorated, you may find better life insurance rates by starting the application process anew.
Who should get term life insurance?
Term life insurance is not just for bread winners. It is commonly purchased for the following reasons:
- Pay for child care
- Fund higher education
- Cover debts or liabilities (e.g. mortgage, funeral costs)
- Fund a buy-sell agreement for a business
- Protect against the loss of a key employee
- Replace an income stream
If you have children at home, carry debts, or own a business, term life insurance may be a good (and inexpensive) asset to maintain.
How to shop for term life insurance
To start, estimate your needs: how long you'll need coverage and how much coverage (death benefit) you require. You can use our life insurance calculator to help with this.
Use the online life insurance quotes form (at the top of this page) to instantly query competing life insurance companies. The information you provide is used only to determine the price that each of our life insurance companies can offer you for the policy you want.
Upon completing the life insurance quotes form, you'll see a list of life insurance quotes. At Wholesale Insurance, we only bring you business from high-rated life insurance companies. It's customary to select the cheapest quote, but if you prefer, you can choose a the life insurance company with the highest financial or service rating, or you can just go with name you recognize and trust. Click the appropriate "Continue" button.
Upon clicking continue, you'll be presented with an application form. You can apply at no cost to you, with no obligation to buy. We do not sell or share your personal information. Fill out the form and submit it, or call us at 1-800-823-4852 if you desire personal assistance or counsel.
For further reading, see The Application Process.
Variations on term life insurance
Besides ordinary term life insurance, you might consider any of the following variations on the basic product:
- Return of premium life insurance (ROP)—When the term of coverage ends, all of your premiums are refunded to you.
- Annual renewable term life insurance (ART)—The term is just one year long, but you can renew your policy upon its expiration.
- Renewable term life insurance—You can renew your term life insurance policy when it expires.
- Adjustable term life insurance—Adjustable term life insurance lets you alter the size of the death benefit while coverage is in force.
- Universal term life insurance—Term life insurance with a cash value account.
Term life insurance quotes
When shopping for life insurance, it's impossible to compare prices in the same way a shopper does at a store because the price an insurer can offer depends on the life expectancy of the person to be insured.
Life insurance companies require several weeks to establish an applicant's life expectancy declare the price of a particular life insurance policy for a particular person, but you can compare rates without waiting so long as that. In just a matter of seconds, you can have term life insurance quotes from dozens of competing life insurance companies.
So what are term life insurance quotes? Quotes are prices that an insurer declares based on what you assert about your own life expectancy. On a quote form, you provide information about your own insurability (health class, height, weight, age, sex), and the insurer will respond by telling you how high or low your life insurance rates will be.
What makes a term life insurance quote different from an actual offer from a life insurance company is that no insurer is going to issue you a policy based solely on what you write about yourself on a quote form. The company wants to verify that you have represented your mortality risk accurately. After all, applicants may dissemble or simply not know about risk factors in their lives.
If you're honest when you fill out the form to request term life insurance quotes, then it's reasonable to assume that you'll receive an offer for exactly the rates you were quoted. If the insurer determines that you don't match the information provided on the quote form (this can happen most easily when you choose a health class to represent yourself), then you probably won't be offered rates as favorable as the ones you were quoted.
Here at Wholesale Insurance, we make getting life insurance quotes easy. Simply fill out the form at the top of this page. (Life insurance companies require all of the requested information in order to generate term life insurance quotes.) Click "Go!" and you'll instantly have a list of term life insurance quotes from which to choose. Pick the cheapest one (or one from a company you trust or a company with a good financial rating), and you can start applying online.
The history of term life insurance
Through England's Imperial Age, Edward Lloyd's Coffee House was a place for investors to underwrite insurance policies for London's shipping industry. At the latter end of the 1600s, policies on the survival of people began to appear there. The society of insurers at Lloyd's would eventually give rise to the renowned insurance firm Lloyd's of London.
Life insurance, during its first hundred years' existence, was rather muddled with gambling. Unlike today, when a financially insurable interest is required for one person to purchase an insurance policy on another's life, life insurance in the old days was often used purely as a vehicle for betting on the survival of disinterested third parties. The expansion of this vice was quite phenomenal until the English banned it in 1774.
The earliest life insurance contracts were instances of annual renewable term life insurance: the term of coverage lasted only a single year, but policies could be renewed for another year's coverage.
