How Does Term Life Insurance Work and What You Need to Know

Term life insurance is a type of insurance that provides a death benefit to your loved ones if you pass away during the policy term. The policy term is usually 10, 20, or 30 years.

The premium you pay for term life insurance is based on your age, health, and the amount of coverage you choose. The younger and healthier you are, the lower your premium will be.

Term life insurance policies can be level or decreasing. Level term life insurance provides the same death benefit throughout the policy term, while decreasing term life insurance provides a decreasing death benefit over time.

Most term life insurance policies can be converted to permanent life insurance policies, such as whole life or universal life, without a medical exam.

Choosing a term life insurance policy can be overwhelming, especially with all the options available. You can choose from term lengths of 10, 15, 20, or 30 years, depending on your needs.

If you're under 60, you may not need a medical exam to get a term life policy. However, if you're over 60, a medical exam is usually required.

Some term life policies offer the option to convert to a permanent policy in the future. For example, the Prudential EssentialTerm Value policy allows you to convert to a permanent policy within the first 7 years of your term, or by age 70, whichever comes first.

You can also choose a policy that offers access to benefits while you're still living. The Prudential EssentialTerm Value and EssentialTerm Plus policies include a terminal illness rider, which pays out a portion of your death benefit if you become terminally ill.

Here are some of the key features of different term life policies:

Ultimately, the right term life policy for you will depend on your individual needs and circumstances.

Term life insurance policies come in various types, each designed to meet different needs. One common type is level term life insurance, which offers fixed premiums and a fixed death benefit for the policy duration, typically ranging from 10 to 30 years.

Level term life insurance provides stability, as both your premium and death benefit remain the same throughout the term. This type is available from companies that offer terms ranging from 10 to 30 years, although a few offer 35- and 40-year terms.

There's also decreasing term life insurance, designed to cover debts that decrease over time, such as a mortgage. The death benefit decreases over the term of the policy, making this type relatively cheaper compared to level term life insurance.

Renewable term life insurance allows you to renew your policy without needing a new medical exam, even if your health has changed. However, the premiums may increase with each renewal, reflecting your age and potential health risks at the time of renewal.

Convertible term life insurance lets you convert your term policy into a permanent life insurance policy without needing a new medical exam. This option allows you to secure lifelong coverage if your needs change.

Some term life insurance policies also offer a return of premium (ROP) rider, which includes a feature where, if you outlive the term of the policy, you get back the premiums you paid.

Here's a breakdown of the major types of term life insurance policies:

You can choose from various term life insurance policies, including Prudential EssentialTerm Value, Prudential EssentialTerm Plus, Term Essential, and PruTerm One. These policies offer different features and benefits to suit your needs.

Here are some key features to consider:

You can also customize your policy with optional riders, such as the terminal illness rider or the Living Needs Benefit Rider.

Level policies, also known as level-premium policies, have a fixed monthly payment for the life of the policy.

Most term life insurance has a level premium, providing coverage for a period ranging from 10 to 30 years.

The death benefit is also fixed, and actuaries must account for the increasing costs of insurance over the life of the policy.

The level premium is comparatively higher than yearly renewable term life insurance because it's based on the summed cost of each year's annual renewable term rates.

In a level term life insurance policy, the premium paid each year remains the same for the duration of the contract.

This cost is based on the summed cost of each year's annual renewable term rates, with a time value of money adjustment made by the insurer.

The longer the period of time during which the premium remains level, the higher the premium amount.

Most level term programs include a renewal option and allow the insured person to renew the policy for a maximum guaranteed rate if the insured period needs to be extended.

The renewal may or may not be guaranteed, and the insured person should review the contract to determine whether evidence of insurability is required to renew the policy.

Typically, this clause is invoked only if the health of the insured deteriorates significantly during the term, and poor health would prevent the individual from being able to provide proof of insurability.

Most term life policies allow conversion to permanent life insurance, providing a way for the insured to convert a term life policy into a Universal Life or Whole Life policy.

This option can be useful to a person who acquired the term life policy with a preferred rating class and later is diagnosed with a condition that would make it difficult to qualify for a new term policy.

The new policy is issued at the rate class of the original term policy, and the right to convert may not extend to the end of the Term Life policy.

The right may extend a fixed number of years or to a specified age, such as convertible to age seventy.

Decreasing term policies have a death benefit that declines each year according to a predetermined schedule.

The policyholder pays a fixed level premium for the duration of the policy. This structure is often used to match the insurance payout to the declining principal of a home loan.

These policies are often used in conjunction with a mortgage, providing protection for the homeowner as the loan balance decreases.

Return Premium is a type of term life insurance that returns some of the premiums paid during the policy term if the insured person outlives the duration of the policy. This can be a great option for those who expect to outlive their policy term.

A 10-year return of premium term life insurance plan, for example, will return the premiums paid by the owner if the 10-year term has expired. This is less any fees and expenses that the life insurance company retains.

The premiums for a return premium term life plan are usually much higher than for a regular level term life insurance policy. This is because the insurer needs to make money by using the premiums as an interest-free loan, rather than as a non-returnable premium.

If you're looking for a return premium option, be sure to carefully review the policy terms and conditions to understand what you can expect in terms of premium returns.

Here are some key facts about return premium term life insurance:

It's worth noting that the return premium option may not be the best choice for everyone, and it's essential to weigh the pros and cons before making a decision.

Simplified issue policies are a great option for those who want quick coverage.

These policies typically have lower coverage amounts than traditional fully underwritten policies.

A medical exam is usually not required, and the application process is streamlined with fewer questions to answer.

Many simplified issue policies can be approved within just a few days.

Convertible term life insurance offers a flexible option for policyholders. You can convert your term life policy to a permanent plan without needing to go through underwriting or proving insurability.

The conversion rider is a key feature of convertible term life insurance. It guarantees your right to convert your policy to a permanent plan, allowing you to maintain the original health rating of the term policy.

You can convert your policy to any permanent plan offered by the insurance company, without restrictions. The basis for the premium of the new permanent policy is your age at conversion.

Here's a summary of the convertible features of the policies mentioned in the article:

Convertible term life insurance can be a valuable option for those who want to maintain their coverage without needing to reapply for a new policy.

Term life insurance premiums are primarily calculated based on the age and health of the applicant. The younger you are, the lower the premium will be.

For example, a 30-year-old healthy male could get a 30-year term life insurance policy with a $250,000 death benefit for an average of $18 per month. At age 50, the premium would rise to $67 a month.

The cost of term life insurance varies based on age, gender, and health. It's not uncommon for people to overestimate the cost of term life insurance, which can prevent them from purchasing a policy. According to the 2024 LIMRA and Life Happens Barometer Study, about 72 percent of all respondents overestimated the true cost of a basic term life insurance policy.

A 20-year-old woman would pay an average of $177 per year for a 20-year term policy, while a 20-year-old man would pay $216 per year for the same policy. In contrast, a 20-year-old woman would pay $3,173 per year for a whole life policy, while a 20-year-old man would pay $3,593 per year.

Here's a rough idea of what you can expect to pay for term life insurance based on age and gender:

Keep in mind that these are just rough estimates and the actual cost of term life insurance will depend on your individual circumstances.

Term life insurance is an attractive option for young people with children, allowing parents to obtain substantial coverage for a low cost.

This type of policy is well-suited for people with growing families, enabling them to maintain the coverage needed until their children reach adulthood and become self-sufficient.

The term life benefit can be equally useful to an older surviving spouse, providing financial security in the event of the insured's passing.

Each insurance company sets a maximum age for its term life insurance coverage, which usually ranges from about 80 to 90 years old, meaning older applicants will pay higher premiums.

Term life insurance is a type of policy that provides coverage for a specified period of time, typically ranging from 10 to 30 years. The policyholder pays premiums for the term, and if they die during that time, the death benefit is paid to their beneficiaries.

There are several types of term life insurance, including Prudential's Essential Term Value, Essential Term Plus, Term Essential, and PruTerm One. Each has its own features and benefits, such as the ability to convert to a permanent policy or access benefits while living.

A term life policy can be customized with optional riders, such as a Living Needs Benefit Rider, which allows the policyholder to access the death benefit if they are terminally ill or confined to a nursing home.

Here are the key features of each type of term life insurance:

Overall, term life insurance provides a cost-effective way to ensure that your loved ones are protected in the event of your passing, and can be customized to fit your specific needs and circumstances.

If you're considering term life insurance, it's essential to understand the different policy options available. Prudential offers several term life insurance policies, including Prudential EssentialTerm Value, Prudential EssentialTerm Plus, Term Essential, and PruTerm One.

Each policy has its unique features, such as the term length, medical exam requirements, and conversion options. For instance, the Prudential EssentialTerm Value policy allows you to convert to a permanent policy during the first 7 years or until age 70, whichever comes first.

Here's a comparison of the Prudential term life insurance policies:

Understanding the differences between term life and whole life insurance can also help you make an informed decision. Term life insurance typically offers a level death benefit, while whole life insurance provides a guaranteed death benefit that can last a lifetime.

Term life insurance is a more affordable option for younger individuals, with premiums substantially lower than permanent insurance. This is because the likelihood of death during the contract term is low.

For a 30-year-old healthy male, a $250,000 term life insurance policy can be had for an average of $18 per month, according to data from Quotacy. This is significantly lower than the premium for a permanent policy.

Permanent insurance policies, on the other hand, are designed to accumulate cash value over time. This is achieved by contributing more premiums than the cost of insurance in younger years, which helps offset the higher cost of insurance in later years.

Here's a comparison of term life and whole life insurance rates for a $100,000 policy:

As you can see, term life insurance tends to be the least expensive option, especially for younger individuals.

When choosing between term life and whole life insurance, it's essential to understand the major differences between these two options.

One of the key differences is the choice of policy length. With term life, you can select a policy length that suits your needs, typically ranging from 1 to 30 years.

Whole life insurance, on the other hand, provides coverage that can last your entire life, typically expiring at a specific age like 95 or 100.

Term life insurance policies do not accumulate a cash value, whereas whole life policies do, growing at a guaranteed rate set by the insurer.

Premiums for term life insurance typically remain level throughout the policy's length, providing a predictable cost.

Similarly, premiums for whole life insurance also stay level throughout the policy's length, making it easier to budget.

However, whole life insurance often comes with the possibility of receiving dividends through participating policies.

Death benefits for term life insurance are typically level, but decreasing death benefits are available.

Death benefits for whole life insurance are also typically level, but graded death benefit policies, such as guaranteed issue life insurance, may have a waiting period before the full death benefit is paid out.

Here's a summary of the major differences between term life and whole life insurance:

When considering term life insurance, it's essential to understand what you're getting into.

A term life policy has no cash value, so you can't borrow against or cash out the policy.

If you're looking for the cheapest type of life insurance, term life is generally the way to go.

Some term life policies can be converted into permanent policies, but this depends on the specific policy and your age.

For example, the Prudential Essential Term Value policy allows conversion to a permanent policy within the first 7 years or to age 70, whichever comes first.

The Prudential PruTerm One policy, on the other hand, can be converted within the first 5 years.

If you need to access the death benefit while you're still living, some term life policies offer this option.

For instance, the Prudential Essential Term Value and Essential Term Plus policies include a terminal illness rider that pays out a portion of the death benefit while you're still living.

You can also add a Living Needs Benefit Rider to some term life policies, such as the Prudential Term Essential policy, to access the death benefit if you're confined to a nursing home, need an organ transplant, or are terminally ill.

Here's a breakdown of some term life policies and their conversion options: