What is Term Life Insurance?
Term life insurance provides coverage for a specific, predefined time period and pays a death benefit if the insured passes away during that policy term. Policy periods typically range from 10, 15, 25, to 30 years. To keep the policy active, premiums must be paid on schedule throughout the chosen term.
Key Points
- Coverage applies only during the selected term - not for life.
- Premiums must be paid on time to maintain active coverage.
- If the insured outlives the term, the policy expires with no payout.
- Generally the most affordable form of life insurance for a given coverage amount.
Who is Covered by Term Life Insurance?
A term life insurance policy covers the individual designated as the insured. If the insured passes away during the policy period, the death benefit is paid to one or more named beneficiaries - typically people who rely on the insured financially, such as a spouse, children, or other dependents.
- The insured is the person whose life is covered by the policy.
- Beneficiaries are named individuals who receive the death benefit if the insured passes away during the term.
- A policy can name one beneficiary or multiple beneficiaries with specified percentage allocations.
- Beneficiary designations can typically be updated throughout the life of the policy.
Why Do You Need Term Life Insurance?
Term life insurance exists to provide financial support to your beneficiaries when they need it most. The death benefit is most commonly used to replace income that would otherwise be lost following the insured's death, but its uses extend well beyond that.
Common Uses for the Death Benefit
- Replacing lost household income for surviving dependents
- Paying off outstanding bills and ongoing living expenses
- Covering future expenses such as a child's education
- Addressing burial and funeral costs
How Does Term Life Insurance Work?
Term life insurance has earned its popularity through simplicity, affordability, and the financial security it provides for a defined period. Here's a breakdown of how the process works from start to finish.
Choosing a Term
The first step is selecting the length of your policy - typically ranging from 10 to 30 years - based on your financial goals and the timeframe you want to protect, such as until your children are grown or your mortgage is paid off.
Premium Payments
Premiums are paid monthly, quarterly, or annually for the full duration of your term. These premiums are usually fixed, meaning they remain the same throughout the life of the policy.
Death Benefit
If you pass away during the policy term, your insurer pays a death benefit to your designated beneficiaries. The funds can be used however the beneficiaries see fit - paying off debts, covering living expenses, funding education, or any other need.
Term Expiration
If you outlive your policy's term, there is no payout, and coverage simply ends. At that point, you can choose to renew for another term, convert to permanent coverage, or let the policy lapse entirely.
Conversion Options
Many term policies include a conversion rider, allowing you to convert to permanent life insurance without a new medical exam. This adds flexibility, though premiums for permanent coverage are typically higher than term rates.
Types of Term Life Insurance
Term life insurance isn't a single product - it comes in several variations designed to address different financial strategies and planning needs.
Level Term Life Insurance
The death benefit and premium remain constant throughout the entire policy term. Terms typically range from 10 to 30 years, offering predictable coverage and stable costs for the duration of the policy.
Decreasing Term Life Insurance
The death benefit decreases at a predetermined rate over the life of the policy. This structure is commonly used to align coverage with a specific declining obligation, such as a mortgage balance - as the debt decreases, so does the coverage amount.
Increasing Term Life Insurance
The death benefit increases over time to keep pace with inflation or growing financial responsibilities. Premiums may rise accordingly to reflect the higher risk associated with a growing benefit amount.
Annual Renewable Term (ART)
Allows policyholders to renew coverage each year without proving insurability. Premiums increase annually based on the policyholder's age at renewal, which can make ART more costly over an extended period - but useful for short-term needs.
Convertible Term Life Insurance
Allows policyholders to convert their term policy into permanent coverage - such as whole or universal life - without a new medical exam. This provides flexibility to adapt coverage as life circumstances change.
Each type serves a different financial strategy. The right choice depends on your personal circumstances and what you're trying to accomplish with your coverage.
How Much Term Life Insurance Should You Buy?
As the insured, you select a coverage amount that reflects your specific financial obligations and the needs of those who depend on you. A common starting point is calculating how much income replacement your beneficiaries would need - for example, if your children are young, you might consider an amount that covers lost income until they turn 18 or finish college.
Additional Factors to Consider
- College expenses for children
- Outstanding mortgage balance
- Other outstanding debt, such as student loans or auto loans
- Funeral and burial expenses
Term Life vs. Whole Life Insurance
Term life insurance is generally the more affordable option compared to whole life insurance, primarily because term policies cover a fixed period and a fixed benefit amount. If the insured outlives the policy term, the coverage simply expires with no remaining value - unlike whole life insurance, which builds cash value over time and provides lifelong coverage in exchange for higher premiums.
How Much Does Term Life Insurance Cost?
The cost of a term life policy is determined by the amount of coverage you select along with several personal factors related to the insured.
Factors That Determine Your Premium
No-Medical-Exam Options
Many applicants may qualify for a no-medical-exam policy. Instead of undergoing a physical exam, this streamlined option relies on a detailed set of health, financial, and lifestyle questions to assess eligibility and pricing.
If your policy term expires and you're still living, the policy can typically be renewed. Your new premium will be recalculated based on your current age, health, and life expectancy, along with your desired death benefit amount.
Secure your family's future
LOCK IN AFFORDABLE PROTECTION FOR YOUR FAMILY'S FUTURE.
The Fortis Insurance helps you find a term life insurance policy that fits your timeline, your budget, and your family's specific needs - whether you're protecting young children, paying down a mortgage, or planning ahead.
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