Term Life Insurance

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How Does Term Life Insurance Work?

If you're wondering how to buy term insurance, it’s a pretty straightforward process. When you shop for a policy online, you’ll request quotes based on a particular term – the length of time you want to be insured. Insurance companies offer terms ranging from very short (1 year) to pretty long (40 years).

You’ll also have to decide whether you want to take a medical exam. If you do, the rates are likely to be lower. But if you’d rather not, that’s okay, too. Since the pandemic, more insurance companies than ever have created no medical exam life insurance policies. Keep in mind, these usually cost a little more than fully underwritten policies with a medical exam.

Once you’ve applied and completed either a medical exam or a health questionnaire for a non-med policy, the life insurance company will use that information to offer you a rate (a price for your policy). You can accept that rate or decline their offer. However, if you decline it, you’ll have to start the process over with a different insurance company.

Once you accept the insurance company’s offer, all you do is start making payments to put that term policy into effect. See? It's pretty easy to buy term insurance after all. Your policy stays active as long as you keep making payments. In a traditional term life insurance policy, both the death benefit and your payment amount are fixed at the time you buy the policy. They will never increase during the length of your term. At the end of your policy’s term, your payments and your coverage both cease. However, you usually have the opportunity to renew your term policy. Your policy will include details on the renewal cost and process, if that's something you'd like to pursue.

If you pass away during your policy’s term, the insurance company will pay the face value (dollar amount) of your policy. That death benefit goes to the beneficiary or beneficiaries you named when you bought the policy.

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Is Term Life Insurance Right for Me?

A smiling couple with their two kids in a park | Term life insurance information

That depends on your budget and the coverage you need.

Term life is the best-known type of life insurance. It's been keeping families financially secure for more than 200 years. An insurance company in Charleston, South Carolina started selling policies in 1760, well before the American Revolution. Today, guaranteed term life insurance is one of the most popular and most affordable varieties on the market. In 2019, 41% of new life insurance policies were term life. That’s 4.1 million policies purchased that year alone! (ACLI.com)

Because it has a limited coverage period, it's less expensive than policies that cover you for the rest of your life (called permanent life insurance). This is one of the biggest advantages of term life insurance. If you’re working with a limited budget, term life is definitely going to be your most affordable option.

The benefit? You know exactly what your monthly payments will be, when they're due, and how much your family will receive if you pass away during the term. That amount will never change—it's called a fixed death benefit.

Your payments might be monthly, quarterly, semi-annually, or yearly, depending on the life insurance company you choose. You can cancel your policy at any time, but if you do, the insurer doesn't have to pay anything if you pass away.

On the other hand, if you’re looking for coverage that never expires, term life can’t provide that. You’d be better off shopping for permanent coverage – whole life and universal life are two common types. Term life also doesn’t build the kind of equity that permanent policies provide, called “cash value.” Those features are only available on whole life or universal life policies.

All this leads to the question: should I buy life insurance now? We recommend clients always get started sooner rather than later, for several reasons. First, you never know what might happen. It's best to have your protection in place as soon as possible. Second, because your age is a factor in determining the price, acting fast can actually save you money. And third, some policy types take longer than others to go through the application and underwriting process. The most affordable policies often require additional paperwork, including a free medical exam. It takes time to get all that wrapped up. To get started, just run a quote here on our website - it's fast, free, and is the first step to protecting your loved ones.

Need help figuring out if term life insurance is best for you? Give us a call and let’s talk through your life insurance options.

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Who Should Buy Term Life Insurance?

Here’s the short and easy answer: if someone depends on you financially, you should get insurance.

If you have young children, debts and liabilities, own a business, or want to leave behind a legacy, term life insurance may be right for you. We just don’t know what the future holds. If you have financial obligations to children, elderly parents, or other family members, you should have something in place to help them if anything happened to you. Life insurance provides the peace of mind that comes with knowing that if you’re no longer there to provide for them, they will still be taken care of financially.

Our clients usually buy term life insurance to:

  • Cover debts or liabilities (e.g., a mortgage, funeral costs)
  • Maintain a spouse's standard of living
  • Provide for their kids until they’re of age
  • Pay for schooling or daycare for their kids
  • Fund a buy-sell agreement for a business
  • Protect a business from a key employee's death

The number one reason to buy life insurance is to protect your loved ones. You may hear life insurance referred to as an investment, or see people online asking, "Should I invest in term life insurance?" But term life isn't an investment, at least not in the traditional sense. It's a straightforward financial transaction - you're paying for a product that will deliver a specified amount of money to your loved ones if you pass away during the policy's term. That's it. Pretty simple, right?

A lot of our clients also ask, "Is now a good time to buy life insurance?" And the answer is always yes. That's because the most affordable time to buy life insurance is yesterday. We'll go over term life pricing in more detail below, but the short version is that your rate is based on your age, health, and a few lifestyle factors. And since your age is only going up, that makes every passing minute the best time to buy life insurance.

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How Long a Term Should I Get?

As with all things life insurance, the answer is "it depends." When you buy term life insurance, it's best to strike a balance between safety and cost. With that in mind, it's much safer to buy a policy with a long term rather than to buy a series of shorter-term policies.

Why is a longer term safer?

When you buy a policy, your rate is locked in – and that rate is entirely based on the health class the insurance company assigned you. What happens if your health gets worse…and then you decide to renew your policy? It’s going to cost more than if you’d bought a longer term to begin with. Once you lock in that rate, you can't be charged more during the entire term of your policy.

Here's an example:
Let’s say your insurance company put you in the “Preferred” health class when you bought your policy, which kept your rate low. Then, let’s say you were diagnosed with cancer in the first year of a 30-year policy. Because your term is so long, you'll keep paying those low "Preferred" rates for the next 29 years.

On the other hand, if this scenario happened during year one of a 5-year policy, you might not even be able to get a new policy after that five-year term ends. If you did, you'd pay much higher premiums.

Also, keep in mind that you need to choose a face value as well as a term length for your policy. These are two different elements. If you ask a life insurance agent, "How much term insurance can I get?", they may want you to clarify whether you're talking about face value or coverage term. Policies come with as short a term as one year, or as long a term as 40 years. In terms of face value, insurers offer ranges from $25,000 up to many millions of dollars. If you're aiming for those millions, however, be aware that you have to keep your request in line with reasonable expectations based on your income and assets. In other words, if you make $50,000 per year but are requesting $10 million in life insurance, an insurer is going to ask why. But don't worry! Estimating your financial needs isn't as complicated as it sounds. We can help you figure out how much is reasonable to ask based on your income and assets.

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Is My Term Guaranteed?

Yes. The term period is the number of years you’ll have insurance protection at a guaranteed rate. You can buy term life insurance with guaranteed rates for 1, 5, 10, 15, 20, 25, 30, 35, or even 40 years, depending on your needs. Here are few examples of a term period for guaranteed term life insurance plans.

Example 1

John and Jane Doe have at least 10 years left on their home mortgage and 2 kids (ages 7 and 9). Most likely, they would buy a 15-year term life policy. Why? Because a 15-year term would cover them until the mortgage is paid off and the youngest of their children is no longer a dependent.

Example 2

John Smith is a business owner who has a 10-year business loan. Most likely, he would buy term life insurance protection for 10 years. This way, he’d be covered during the period he still owes money on that loan.

The most common term periods of death benefit protection are 10, 15, 20, and 30 year plans. As a result, term life rates for these periods are also the most competitively priced.

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What Happens at the End of My Term Insurance Policy?

When your term ends, so does your policy.

If you want your policy to continue, you can do that. Every guaranteed term life insurance contract will have a rate spelled out that you can pay to continue your policy once the initial term expires. But be sure to read the fine print! In almost all cases, that rate will be more – sometimes significantly more – than you paid when the policy began.

Ready to get started?

At this point, you have several life insurance options:

Pay the higher premiums as spelled out in your contract to continue coverage.

This might be a good solution if you’re in poor health, which makes it more difficult to find an affordable replacement policy. Continuing coverage is usually only allowed until you reach a certain age (in many cases, it’s age 90).

Convert to a permanent policy.

Your insurance company may be able to replace your term life policy with a permanent policy that covers you for the rest of your life. Your rates might only be guaranteed for a certain period (such as 10 years). Your term policy might also have a specific window for conversion, such as the first 5 years of your term.

Opt for a renewable policy.

Renewable life insurance can be replaced with a policy of the same type, face amount, and health class. You might have an increase in term life rates to reflect your age.

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What Kinds of Term Insurance Policies Are There?

If insurance isn't your favorite topic, you're not alone. Most of our clients come to us and ask, "Which policy is best for me? Which life insurance to choose?" It's an important decision and we're here to help. Everyone's situation is different, so we can't make across-the-board recommendations. That's why we recommend you give us a call. We'll ask a few quick questions about your goals, finances, and family needs and help you pick the life insurance that's best for you. Here are just a few types we offer:

Annual renewable term insurance (ART)

The term is just one year long, but you can renew your policy upon its expiration. Your rate will probably increase each year you take this option.

Adjustable term life insurance

Lets you change the size of the death benefit while coverage is in force.

Participating term insurance

Term life insurance that provides dividends to the policyholder.

Renewable term insurance

You can renew your term life insurance policy when it expires.

Return of premium

When the term ends, your premiums are all refunded to you.

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What Is Return of Premium?

This type of policy offers a partial or complete return of the premiums you’ve paid if you’re still alive at the end of your term. If you pass away during the term, the insurance company pays the full death benefit to your beneficiaries without a return of premium. You may also see these policies referred to as “zero premium life insurance.”

Return of premium policies usually cost a little more than traditional term. When you make a payment, that little bit of extra cost is set aside in a savings vehicle designed to accumulate an amount of money equal to the amount of premium you’ve paid throughout the term. That amount is what the life insurance company returns to you as a refund of premium. This feature is virtually identical to the cash value feature on most permanent life insurance products, like whole or universal life insurance.

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How Are Term Life Rates Determined?

Your term life rates will depend on a number of factors involving your health, lifestyle, and job. That's why there's no one-size-fits-all answer to the question: how much will term life insurance cost me?

Insurance companies base their rates on what they call a “rate class.” To assign you a rate class, they do one of two things:

  • provide a medical exam for you and use data gathered from that exam to evaluate your life expectancy
  • use digital sources like medical records, prescription records, and DMV records to evaluate your life expectancy

The insurer will look at the results of either your exam or their data collection, as well as any attending physician statements (APS) they request from your doctor.

All term life rates are based on the life expectancy of the insured person. If you have a longer life expectancy, you’ll pay less for coverage. Other factors that can affect your rate include hazardous activities or work, prior health history, and family health history. The good news is that once an insurer offers you a rate, it will be locked in for the entire term.

When you get a term life quote, you’ll be asked for a few key pieces of information (age, sex) that can give you a ballpark rate figure. Keep in mind that doesn’t necessarily represent actual term life rates. As long as you answer the questions honestly, an affordable term life insurance quote will most likely result in an affordable policy once underwriting is complete.

You may still be wondering: can term life premiums increase? Or are term life insurance rates locked in? The good news is they're locked in. Your rates will not go up during the specified term of your policy. No matter what happens during that term - including new health issues that may affect you - it won't affect the price you pay during that term. Keep in mind, however, that if your term expires and you want to buy a new policy, the price will increase. That's why it's smart to buy the longest term you think you might need, just in case price hikes or health issues make it less affordable to buy more coverage later.

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Where Should I Buy Life Insurance?

There are two places to buy life insurance - from an insurance provider or from a licensed insurance agent. The problem with buying directly from an insurance provider is that they're only selling their own products. A licensed independent insurance agent can sell policies from dozens of insurance companies, making it a one-stop shop. It's faster and easier to shop for life insurance with an agent, who can guide you through the process and quote prices on dozens of policies from different carriers.

You can start the process right here on our website. We'll help with everything, from getting a quote to submitting an application request. We source quotes from over 40 of the nation's leading insurers. Once you get a quote and pick the policy you want, we'll reach out to get a little more information from you in order to submit that application to an insurer.

2022 is our 50th year in business, so you can trust that we'll be around for the long haul. We're still a family-owned company dedicated to helping families protect their loved ones. Our licensed agents, application specialists, and underwriter have all been in the business for decades. Their experience will help you get the lowest possible rates and the coverage that best suits your family's needs.

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What Can My Family Do with the Life Insurance Money?

Anything! Life insurance money is used for a lot more than covering the cost of a funeral or burial expenses. Many families buy it specifically for these reasons:

  • Pay for child care
  • Fund higher education
  • Cover debts or liabilities, like a mortgage
  • Fund a buy-sell agreement for a business
  • Protect against the loss of a key employee
  • Replace an income stream

There are no restrictions on what your loved ones can do with that money. When you buy term life insurance, you’re buying a result: a payout for your loved ones when you pass away. In most cases, that cash is also income-tax-free, so you don’t have to worry about any tax implications for the future.

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What's Next?

  • Start shopping for guaranteed term life insurance right now – use our quoter to compare rates online.
  • Get help by calling or emailing us for personalized advice.
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Your actual term life insurance premium can only be determined by a full application and the carrier's underwriting process, which may include some medical testing at their expense. Depending on the carrier, premiums can be paid on an annual, semi-annual, quarterly or monthly basis. Monthly premium rates may be available via EFT (electronic funds transfer). Not all carrier policies are available at all durations for all ages in all states. By providing your phone number and the name of your wireless carrier, you agree to WholesaleInsurance.net's privacy policy and terms of use. You also agree to receive communication from us at the phone number(s) you provide. Our communication with you may include autodialed or pre-recorded calls, emails, and SMS or MMS messages. You may opt out at any time. You may also call us directly at (800) 823-4852.

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