Life Insurance
Term life insurance provides a death benefit for a set period of time, such as 10, 20 or 30 years. It is commonly used to help protect income, a mortgage, children and other financial obligations.
Term life insurance is a contract between you and an insurance company. You pay premiums, and in exchange the insurer agrees to pay a death benefit to the beneficiaries you name if you die while the policy is in force.
The defining feature is the term. Coverage lasts for a set number of years rather than for life. If a covered death occurs while the policy is in force, the beneficiary generally receives the death benefit under the terms of the contract. If the term ends and the policy is not renewed or converted, the coverage stops.
Most term policies are not designed to accumulate cash value, and industry consumer guidance describes term insurance as intended to provide lower-cost coverage for a specific period. That makes it a common choice for obligations with an expected end date — a mortgage that gets paid off, children who become financially independent, or working years that end at retirement.
30-year level term
This is the death benefit your beneficiaries would receive. It is usually sized against a specific obligation — replacing income, clearing a mortgage, funding education — rather than picked as a round number.
This is how many years the coverage runs. The length is generally matched to how long the obligation is expected to last, not to how long you expect to live.
The insurer reviews your application and assesses risk. Depending on the product this can involve health questions, a medical exam, prescription history, motor vehicle records or other information.
If the application is approved, the insurer offers coverage at a particular underwriting class and premium. Coverage begins once the policy is issued and the first premium is paid, and continues while premiums are paid and the contract remains in force.
Most people buy coverage to protect something specific. These are the needs it comes up for most often.
If a household depends on your earnings, a death benefit can help replace part of that income for a period of years while the family adjusts.
Coverage can be sized against a remaining mortgage balance so that a surviving household has the option of staying in the home.
Coverage is often kept in force through the years children remain financially dependent, including the cost of childcare that a surviving parent may need to pay for.
If you are funding education, a death benefit can help keep that plan on track if the person paying for it is no longer there.
Co-signed loans, personal debts and similar obligations may not disappear at death. Coverage can be used to help settle them rather than leaving them to an estate or a co-signer.
Businesses sometimes use term coverage for obligations with a defined horizon, such as a loan term or a buy-sell arrangement. Arrangements of this kind usually involve legal and tax advice.
There is no single right answer. The amount depends on what you are protecting and on what is already in place.
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Term length is generally tied to how long a financial obligation is expected to last. The points below are considerations rather than recommendations — the right answer depends on your circumstances, and it is worth discussing with a licensed insurance professional.
Not every insurer offers every structure or feature, and the contract is what governs in each case.
New York's Department of Financial Services describes level term as a policy whose face amount remains the same for the entire period.
Coverage that continues year to year rather than across a fixed multi-year block.
A feature rather than a separate product. Where a policy is convertible, the owner has the right to change it into a permanent policy without providing new evidence of insurability.
A structure where the death benefit declines over the term, often intended to track a reducing balance such as a mortgage.
No single factor sets the price on its own. Insurers weigh these together, and they weigh them differently from one another.
Age at application
Generally one of the most significant factors, because it is closely tied to mortality risk.
Health history
Current conditions, past conditions, prescriptions and family history may all be considered.
Tobacco or nicotine use
Usually assessed separately from general health, and often has a substantial effect on the rate offered.
Coverage amount
A larger death benefit generally means a higher premium, though not always in a straight line.
Term length
A longer level-term period generally costs more than a shorter one for the same death benefit.
Underwriting class
Insurers group applicants into classes. The class you are offered, rather than any single fact about you, is what sets the rate.
Occupation and activities
Some occupations and hobbies are treated as higher risk and may affect pricing or eligibility.
Driving and other records
Insurers may review motor vehicle records and similar sources as part of assessing risk.
Classifications permitted by state law
Where state law permits it, insurers may use classifications such as sex in setting rates. What is allowed varies by jurisdiction.
The insurer and the product
Two insurers can assess the same applicant differently, which is why the same person may receive materially different offers.
Underwriting is how an insurer decides whether to offer coverage and on what terms. There is more than one route to it.
The traditional route. It generally involves a medical exam and fluid samples alongside the application, and takes longer, but it gives the insurer the most information to work with.
Read moreSome insurers forgo the physical exam for applicants who qualify and instead draw on data sources and predictive models. Where the available data is not sufficient, an applicant may still be referred to full underwriting.
Read moreA shorter application built around health questions rather than an exam. Answers can still result in a decline, and coverage amounts are often limited.
Read more"No medical exam" does not mean "no underwriting". These products generally still assess risk using health questions and third-party data, and the convenience may be reflected in the rate or in the coverage available.
Reaching the end of a level term is not automatically the end of all options, but none of the options below are guaranteed to be available. What applies depends on the contract, and it is worth reading the policy before the term is close to ending.
The two categories are built for different jobs rather than being better or worse than one another. This is a short orientation; the dedicated comparisons go into detail.
| Feature | Term life | Permanent life |
|---|---|---|
| Coverage duration | Term lifeA defined number of years | Permanent lifeDesigned to last for life, if the contract is kept in force |
| Cash value | Term lifeTypically none | Permanent lifeTypically has a cash value component, which varies widely by product |
| Initial premium | Term lifeOften lower for the same death benefit | Permanent lifeGenerally higher for the same death benefit |
| Complexity | Term lifeRelatively few moving parts | Permanent lifeMore features, and more that needs reviewing over time |
| Commonly used for | Term lifeTemporary coverage generally designed for defined financial needs | Permanent lifePermanent coverage with cash-value features, rather than temporary death-benefit protection |
Scenarios rather than recommendations — whether it suits you depends on details this page cannot know.
Questions worth having answered in writing before you sign anything.
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