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What Is Term Life Insurance and How Does it Work?

January 10, 2022
Our goal is to educate and advise on life insurance options, so you can feel confident in making the right choice, whether that’s through Quotacy or somewhere else. To ensure we provide accurate and trustworthy information, our writers follow strict editorial standards.

Term life insurance is the most commonly purchased type of life insurance on the market. That means you have a lot of choices available. Fortunately, with the help of today’s article, you’ll have everything you need to decide if this type of life insurance is right for you.

Before we dive in to the specifics, let’s go over the basics first.

Here’s What Term Life Insurance Really Means

Don’t let the name intimidate you. Term life insurance is simply a type of life insurance that lasts for a specific period of time called a term.

If the insured individual dies within that specific period of time, the life insurance carrier pays a death benefit to the insured’s beneficiaries.

Term life insurance is the least expensive way to purchase life insurance coverage.

Paying for Term Life Insurance

The majority of term policies sold are level term policies.

With level term life insurance, your policy premiums remain the same for the entire term length. So, if you’re paying $21 per month for a 30-year term policy, that $21 will never increase (or decrease) for the entire life of the policy.

Term life insurance is affordable and can be customized to fit most budgets. You have many options as to how long you want coverage for. Not everyone needs the same amount of life insurance coverage. The term length options include 10, 15, 20, 25, 30, 35, and 40 years. The longer your coverage lasts, the higher your premiums will be.

» Compare: Term life insurance quotes

Average Monthly Premiums for a Healthy 30-Year-Old Male with a $500,000 Term Life Insurance Policy
10-Year Term $16.21
15-Year Term $17.05
20-Year Term $20.70
25-Year Term $26.40
30-Year Term $34.12
35-Year Term $38.94
40-Year Term $52.18

How much term coverage you own (that’s the amount your beneficiaries would receive if you died) also affects your policy premiums. The more coverage you own, the higher your premiums.

Not everyone needs $1,000,000 in life insurance coverage. Buy what you can afford. Here at Quotacy we always say a $100,000 policy is a million times better than nothing.

Not sure how much life insurance you need? We’ve got your back.

Before you research term life insurance rates, check out our free life insurance calculator.

After answering a few easy questions, you’ll have a good estimate of how much term life insurance to buy.

See what you’d pay for life insurance

Comparison shop prices on custom coverage amounts from the nation’s top carriers with Quotacy.

6 Benefits of Term Life Insurance

1. Term life insurance is inexpensive.

The majority of Americans overestimate how much life insurance costs by three times. I challenge you to go to our term quoting tool and see how little a policy could cost you. You might be surprised.

2. The death benefit is generally tax-free.

IRA benefits will be taxed. Social Security benefits are often taxed. Your 401(k) benefits are taxed. Most pensions are taxed.

But life insurance benefits? No tax – 99% of the time. There are a few situations in which life insurance payouts are taxed, but our agents can help you avoid that situation.

» Learn more: How Is Life Insurance Taxed?

3. Life insurance is exempt from probate.

If you die, many assets first go through probate (a court-supervised process) before being passed down to heirs. Probate can be costly and time-consuming.

Life insurance death benefits do not go through probate (unless you name your estate or a minor child as your beneficiary–don’t do this) so your beneficiaries will receive the funds much quicker.

4. Term can be converted to permanent for free.

Most term policies automatically include a “term conversion rider” at no charge. Down the road, if you decide that you want life-long coverage, you can convert your term policy into a permanent policy without needing to go through underwriting again.

Why is this beneficial you ask? Well, let’s say you purchased a 20-year term policy and were then diagnosed with stage 4 breast cancer. Normally, an invasive cancer diagnosis is a decline, but not with a conversion rider. The life insurance company cannot decline you or take your diagnosis into consideration when determining your permanent policy’s premiums.

» Learn more: What Is a Term Conversion Rider?

5. You can receive early benefits if diagnosed with a terminal illness.

Most term policies also automatically include an accelerated death benefit rider at no charge.

As an example, let’s say you have a $500,000 term life insurance policy and are diagnosed with heart failure and given nine months to live. Your specific life insurance carrier allows you to cash out up to 75% of the benefit. You decide to take out half of the benefit ($250,000) to check everything off your bucket list. When you pass away, your beneficiaries will still receive the remaining $250,000.

» Learn more: Accelerated Death Benefit Rider: What It Is and Why It’s Free on Most Policies

6. Your loved ones are financially protected.

Term life insurance is best known as “income replacement.” If you have a family who relies on you and you die prematurely without life insurance, what happens to them? They struggle emotionally and financially. If you die with life insurance, your loved ones will still grieve, but they can pay the bills. They can stay in their home. They can go to college.

Get life insurance. Don’t chance that your loved ones will need to turn to family, friends, or even strangers, like with a GoFundMe account, to pay for your funeral or for their groceries.

10 Reasons Why You May Buy a Life Insurance Policy

  1. You need a policy to secure a business loan until it is repaid.
  2. You are getting divorced and your settlement requires a policy to secure spousal maintenance or child support until age 18.
  3. You are buying a home and require a policy until your mortgage is paid-in-full.
  4. You have a family (spouse, domestic partner, or children) who rely on your financial support. You need a policy to replace your earned income.
  5. You wish to leave some money to your family or pay for your final expenses.
  6. You are a key person in a business and your death would negatively impact the success of your company. You need a policy as part of your business plan.
  7. You wish to use life insurance to equalize inheritance of a family farm or business.
  8. You wish to donate to a favorite cause or charity via life insurance.
  9. You don’t want to leave your debt behind after you die. Your policy will pay it off.
  10. You want to fund your kid’s education, wedding, or another important milestone even if you cannot be present to witness the big day.

If you have people who rely on you financially, with how affordable term insurance is and how easy it can be to buy, there is no excuse not have it. Start the process by getting a free, anonymous term quote today.

Watch the Term Life Insurance Video



    I am 89 years old. I have a $250,000 term life policy. I have been paying $300 / month for over 40 years. My company , Merck has told me they will end my policy in 2020. To convert Prudential wants a onetime payment $170,000 conversion cost.. Do I have any recourse?

    • Jeremy Hallett


      It makes me sad that your coverage is coming to a close in your golden years. It sounds like you have what is known as a group policy with Prudential through Merck. These policies typically are not meant to last for one’s whole life. I am actually surprised that there is a conversion option for you. At 89 years old, there aren’t many life insurance products available, and the policy you have sounds as good as anything you could get on the open market. Even if it is very steep in cost.

      As to your question about recourse, not sure what that would be. Your policy is a contract between Prudential and Merck for your benefit, and the contracts are solid. The issue would be that there was no one to help you understand that the term portion of this plan was coming to an end and that it would be a good idea to convert the policy or buy a different plan. That information would have been valuable 10 years ago or so.

      It still might make financial sense to consider paying $170k for a $250k policy if there are no more premiums due and the policy will stay in force. Your financial planner could help analyze that for you.

  2. Mary Jaworski

    How does selling my term life insurance for cash work?

    • Natasha Cornelius

      Hi Mary, a term life insurance policy would need to be converted into a permanent life insurance policy before it can be sold. You can read more about selling life insurance policies in this blog: Can I Sell My Life Insurance Policy?

  3. Iris Black

    Great article on all the benefits that term life insurance provides. Term life insurances offer financial stability to families after earning members pass away. Nowadays, there are whole life insurances coming up too, which allow people to borrow money from time to time. A good idea for retired individuals.


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