Best Term Life Insurance: How To Choose The Right Policy

Term life insurance is a type of insurance that provides coverage for a set period, typically between 10 and 30 years. It is usually much more affordable than permanent life insurance, which is designed to last your entire life. Term life insurance is often chosen by people who want to protect their family while their children are young and while they are paying off debts such as a mortgage.

When choosing a term life insurance company, it is important to consider factors such as customer satisfaction scores, financial strength ratings, policy types, and price. Some highly-rated companies that offer term life insurance include Guardian, MassMutual, Northwestern Mutual, Thrivent, New York Life, Pacific Life, Penn Mutual, and AARP.

How much coverage do you need?

When it comes to term life insurance, the amount of coverage you need depends on several factors, including your age, income, mortgage, other debts, and anticipated funeral expenses. Here are some guidelines to help you determine the appropriate coverage amount:

• Income Replacement: It is recommended to have a life insurance policy worth 10 to 12 times your annual income. This ensures that your family can maintain their standard of living and cover essential expenses if you pass away.
• Mortgage and Debts: Consider any outstanding debts, such as a mortgage, car loans, or credit card balances. The coverage amount should be sufficient to pay off these debts, providing financial relief to your beneficiaries.
• Future Expenses: If you have children, factor in future costs such as college tuition. The coverage amount should help cover these expenses in your absence.
• Final Expenses: Funeral costs and end-of-life expenses can be significant. Ensure that your coverage amount is adequate to cover these final expenses, so your loved ones don't have to bear the financial burden.
• Number of Dependents: If you have multiple dependents, such as a spouse and children, you may need a higher coverage amount to ensure their financial security.
• Stay-at-Home Parents: Even if one parent stays at home, it's essential to have life insurance for them. Calculate the cost of childcare, housekeeping, and other services they provide, and consider a coverage amount of $250,000 to $400,000.
• Health and Age: Your age and health are critical factors in determining coverage. Older individuals or those with pre-existing health conditions may require higher coverage amounts to compensate for the increased risk.
• Lifestyle and Hobbies: Your lifestyle choices and hobbies can impact your coverage needs. If you engage in risky activities or have expensive hobbies, you may want to increase your coverage amount.
• Inflation: Don't forget to account for inflation when determining the coverage amount. Choose a policy that offers sufficient protection even as the cost of living increases over time.
• Other Financial Goals: Consider your long-term financial goals and how life insurance fits into them. For example, if you're saving for retirement, factor in how much coverage you'll need to ensure your spouse can maintain their standard of living.

It's important to remember that everyone's situation is unique, and there is no one-size-fits-all approach to determining the appropriate coverage amount. Consult with a qualified insurance professional or financial advisor to assess your specific needs and circumstances and help you make an informed decision about the coverage amount that best suits your situation.

What are the best companies for term life insurance?

When looking for the best companies for term life insurance, it's important to consider your personal situation, customer satisfaction scores, financial strength ratings, and the ability to compare multiple quotes. Here are some of the best companies for term life insurance:

Guardian Life

Guardian Life offers term life policies in a range of term lengths, including 1, 10, 15, 20, and 30-year terms. They also offer coverage for people living with pre-existing conditions, such as HIV. Guardian received high ratings for customer satisfaction and had very few complaints from consumers. However, they offer minimal policy details on their website, and you cannot purchase a policy online.

MassMutual

MassMutual offers standard term life insurance, an annual renewable policy, and free coverage for low-income parents under its LifeBridge program. They provide a wide range of term and permanent life insurance policies and support online claims. MassMutual received a low number of complaints and has a high financial strength rating. However, most of their policies require a medical exam.

Northwestern Mutual

Northwestern Mutual received significantly fewer complaints relative to its size compared to other insurers, making it a solid choice for customer experience. They offer term life insurance with level premiums for the life of the policy and annual renewable term life insurance with relatively low initial premiums. Northwestern Mutual has a high financial strength rating and is highly rated for customer satisfaction. However, their website does not provide specific details about coverage amounts or riders.

Thrivent

Thrivent is a fraternal benefit organization that offers term and permanent life insurance to Christian consumers. They received very few complaints relative to their size and may pay dividends to select policyholders. Thrivent offers disability and long-term care insurance in addition to life insurance. However, their website provides limited details about coverage amounts and riders, and life insurance is only available to those with a Christian affiliation.

New York Life

New York Life offers two term life insurance products: a level term plan and a yearly renewable term plan. Their level term plan is available for terms of 10, 15, and 20 years, while the yearly renewable term plan can be renewed annually. New York Life has a low complaint volume for a company of its size, and some of their policies are eligible for dividends. However, quotes are not available online.

Pacific Life

Pacific Life offers term life insurance that can be converted to permanent coverage, with a cash credit for policyholders. They have a good reputation among customers and offer a variety of term and permanent policies. Pacific Life includes an accelerated death benefit rider at no additional cost. However, some of their policies are not available in New York, and you cannot purchase a policy online.

Penn Mutual

Penn Mutual offers term life insurance with coverage starting at $100,000 and terms of 10, 20, or 30 years. They have high customer satisfaction and a low volume of complaints. Penn Mutual offers a return of premium life insurance policy, which refunds your premiums if you outlive the term. However, their website provides limited policy information, and you cannot get a quote online.

AARP

AARP offers term life insurance to individuals aged 50 to 74 and their spouses aged 45 to 74 through a partnership with New York Life. Their policies do not require a medical exam, and they have fewer complaints than expected for a company of their size. However, term life insurance premiums increase every five years.

What are the pros and cons of term life insurance?

Term life insurance is a type of insurance that provides coverage for a set period, known as the "term". It is typically much more affordable than permanent life insurance, which is designed to last your entire life. Term life insurance is ideal for those who want coverage for a defined period, such as while raising children or paying off a mortgage.

Pros

• Affordability: Term life insurance typically has lower premiums than permanent life insurance because it covers a specific period and doesn't build cash value.
• Simplicity: Term life insurance is straightforward to understand. It provides a death benefit if the insured passes away during the term, without the complexity of investment components or cash value accumulation.
• Flexible coverage options: Policies are available in various term lengths (e.g. 10, 20, or 30 years) and coverage amounts, allowing individuals to choose a policy that aligns with their specific needs.
• Predictable premiums: Many policies offer fixed premiums throughout the term, making budgeting easier and preventing unexpected increases in insurance costs.
• Coverage for specific needs: Term life insurance can cover specific financial responsibilities, such as a mortgage, education expenses, or other debts, ensuring that financial responsibilities are covered if the insured passes away.
• Renewability and convertibility options: Certain term policies offer renewal or conversion to permanent insurance at the end of the term, providing flexibility to extend coverage or transition to permanent insurance without a medical exam.

Cons

• Temporary coverage: Term life insurance covers a specific period (e.g. 10, 20, or 30 years). Once the term ends, the policy expires, and coverage stops.
• No cash value: Term life insurance does not accumulate cash value or serve as an investment. You cannot borrow against the policy or use it as a savings vehicle.
• Increasing premiums upon renewal: If you renew your term life policy after the initial term ends, the premiums are typically recalculated based on your current age and health, making it costly to maintain coverage as you age.
• Limited flexibility: Term life insurance is relatively inflexible compared to permanent policies, which offer various riders and options for adjusting coverage.
• No return on premiums: Standard term life insurance policies do not return premiums if the policyholder outlives the term.
• Health-based eligibility: The cost and availability of term life insurance are primarily based on your health and age at the time of application. Individuals with significant health issues may face higher premiums or be denied coverage.
• Potential for inadequate coverage: Term life insurance is intended to cover specific periods and financial obligations, but it may not address long-term or permanent needs. If your financial situation changes or you develop long-term obligations, you may need to purchase additional or different types of insurance.
• Policy expiry risk: The policyholder risks outliving the term and facing difficulties obtaining new coverage due to age or health issues, leaving them vulnerable when they still need financial protection.

How does term life insurance work?

Term life insurance is a type of life insurance that offers coverage for a set period of time, typically between 10 and 30 years. It is usually the most affordable type of life insurance because it only lasts for a specific number of years, and there is no payout if you outlive the policy term. However, many term life insurance policies offer the option to convert to a permanent life insurance policy at the end of the term.

Term life insurance is a contract between the policyholder and the insurance company. The policyholder agrees to pay a premium for a specific term, and in return, the insurance company promises to pay a specific death benefit to the beneficiary upon the death of the insured. The death benefit is usually income tax-free unless the premiums are paid with pre-tax dollars.

There is an application process for term life insurance, which includes a medical exam to evaluate your health and determine your risk level. Certain hobbies and occupations may be deemed risky and could raise your rates.

When choosing a term life insurance policy, you will need to select a term length. If you have children, a popular rule of thumb is to choose a term long enough to see them through college. The longer the term, the more you will typically pay each month for a given coverage amount. It is generally easier to get insurance when you are younger and in good health.

You will also need to decide on the death benefit amount. A common guideline is to have coverage equal to 10 times your salary, but the average working American has between two and four times their salary in life insurance coverage. The younger you are, the more coverage you will likely need to compensate for the years of potential wage-earning ahead of you.

There are several types of term life insurance policies available:

• Level premium: This is the simplest and most common type of policy. Your premium stays the same for the entire term.
• Yearly renewable term: This policy covers you for a year at a time, with the option to renew without a medical exam. However, the cost increases each year, and over a full term, you will pay more than you would with a level premium policy.
• Return of premium: This type of policy pays back all or a portion of your premiums if you live to the end of the term, but your premiums are much higher than a level term policy.
• Guaranteed issue: These policies do not require a medical exam and only ask a few simple health questions. However, the insurance company assumes you are a risky prospect, so your premiums are much higher.

Another feature to look for in a term policy is convertibility, which lets you change your term insurance into a permanent whole life policy later on without taking another medical exam.

How much does term life insurance cost?

The cost of term life insurance depends on a variety of factors, including age, gender, health, lifestyle, and the length of the term.

Term life insurance is generally considered a temporary policy, lasting for a set period, such as 10, 20, or 30 years. It is typically much more affordable than permanent life insurance, which is designed to last your entire life. The average cost of a term life insurance premium is around $160 a year, with a healthy 30-year-old woman being able to get a $20,000 term life insurance policy for less than $8/month.

The cost of term life insurance can vary depending on the length of the term selected. For example, a 10-year term policy will be less expensive than a 25-year policy due to the number of years of coverage. The amount of insurance purchased will also impact the cost, with a $10,000 death benefit costing less than a $100,000 death benefit.

Age is a significant factor in determining the cost of term life insurance, with younger people generally paying less than older individuals. This is because as you age, your life expectancy decreases, and the likelihood of your insurer having to pay out your policy increases. Gender also plays a role, as women, who have longer life expectancies than men, tend to pay less for life insurance.

Health is another important consideration. Insurers will take into account your height, weight, medical history, and any pre-existing conditions when determining your premium. Tobacco use will also impact your rate, as smoking is associated with various medical conditions.

Your lifestyle and hobbies can also affect the cost of term life insurance. If you engage in risky activities such as skydiving or racing, you may be considered a higher risk and be charged a higher premium. Similarly, certain occupations that are deemed hazardous, such as police officers or firefighters, may result in higher premiums.

Overall, the cost of term life insurance can vary significantly depending on individual factors and the specifics of the policy. It is recommended to compare quotes from multiple insurers to find the best rate.

Frequently asked questions