Many or all companies we feature compensate us. Compensation and editorial research influence how products appear on a page.
Many or all companies we feature compensate us. Compensation and editorial
research influence how products appear on a page.
Insurance Life Insurance

Is Term Life Insurance Worth It?

Updated Apr 05, 2023   |   5 mins read

One often-overlooked aspect of planning for your financial future is insurance protection, specifically life insurance coverage. Through life insurance, individuals have the option to transfer the risk of financial loss from a death to a life insurance company.

In exchange for a monthly or annual premium, the insurance company promises to pay a set amount of funds, income-tax free, to the beneficiaries listed on a life insurance policy. This eases monetary burdens like final expenses, debts like a mortgage balance or joint credit cards, or replacement of income for some period of time.

Although it can offer substantial financial relief, most people avoid the life insurance discussion and planning process because the process of selecting the “right” policy is cumbersome. However, breaking down your options into the two broad categories of insurance –whole life (permanent) and term life (temporary) – makes the decision easier.

Jump to a section:

Getting to Know the Life Insurance Industry

There are more than 600,000 direct life insurance company employees offering coverage to qualified individuals in the United States. The sheer number of licensed agents recommending life insurance products is overwhelming, which can make the process of choosing the best-fit policy and coverage type a challenge.

Permanent or Whole Life Insurance

Permanent life insurance provides long-term coverage that lasts as long as the insured person lives, so long as premiums are paid. This type of policy also builds cash value over time – an internal component of a permanent life policy that may be used for financial needs in the future.

While some refer to permanent insurance as whole life, this category of life insurance may include whole, universal, guaranteed, or variable policies. Premiums paid for permanent insurance can be fixed or adjustable over time, and the cost is typically higher than similar coverage with term policies.

Temporary Life Insurance

Conversely, term insurance is temporary life insurance protection. Instead of insuring coverage over one’s entire life, term policies expire after a specific term, typically 10, 15, 20, or 30 years. Individuals can select the term that best suits their financial needs, but they should recognize that coverage no longer exists when the term ends. Premiums for term life insurance policies are fixed, as is the total benefit paid to beneficiaries.

What to Know About Term Life Insurance

How Much is Term Life Insurance

For both term and permanent life insurance, the cost depends on the insured’s current age, health status and medical history, smoker status, gender, and state of residence. Also, not every insurance company offers the same rates for the same coverage amounts and health statuses. For this reason, it is necessary to comparison shop with different insurance companies before selecting a policy.

Benefits of a Term Life Insurance Policy

One of the most notable benefits of term life insurance is the lower cost. Because coverage expires, the premiums due for a term life insurance policy are far lower compared to the same coverage from a permanent policy. The low cost makes it easier to leverage your premium dollars substantially, effectively providing coverage for a large amount for a minimal out-of-pocket expense.

Additionally, term insurance is beneficial in covering decreasing needs. For instance, minor children may not always need financial support should a parent pass away, and a mortgage balance may ultimately be paid down to where a large insurance policy is not necessary. Term life insurance, then, provides the set amount of coverage needed without requiring a long-term commitment.

Disadvantages of a Term Life Insurance Policy

For most term life insurance policies, insurance providers only offer coverage for 10, 15, 20, or 30 years. While there are a handful of companies that offer 35-year policies, the longest term period may not be sufficient to cover financial needs in the event of one’s death. When a term insurance policy expires, so does the coverage. This means the chance of outliving a policy is a real concern for some, particularly those who are younger and in good health.

Also, term insurance is a no-frills type of life insurance coverage. Unlike with whole life insurance, there is no cash value inherent to the policy, and there are no options for adding insurance riders that may offer supplemental benefits while you are alive or to your loved ones after you pass away.

Is Term Life Insurance Worth It?

Ultimately, the decision to purchase term life insurance is based on your specific needs and financial circumstances. For those who have large but decreasing financial needs that would not be covered without a life insurance benefit, term insurance may be a cost-effective solution.

>> Read More: Is Life Insurance Worth It?

While term insurance is not as alluring as permanent insurance with its cash value and infinite coverage, it can be a valuable, affordable way to provide financial peace of mind to you and your loved ones. Before selecting a term life insurance policy or a permanent life insurance option, be sure to evaluate your options not only with different insurance companies, but with other investments and savings strategies.