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What is term life insurance and how does it work?

It’s one of the most affordable types of coverage, and a simple way to provide protection for you and your family. Learn all about it in this quick guide.

Simply put, life insurance serves as a cornerstone of any responsible long-term financial plan. Why is that? Because it protects the people who matter most — those you love, and who depend on you to provide for them. If you have financial dependents — like children, or a partner you share a mortgage with — it is important to have life insurance. If something should happen to you, these beneficiaries can use the policy’s death benefit to help cover the cost of a funeral, meet day-to-day living expense, plan for the future, and so much more.

When shopping for life insurance, you’ll quickly learn that there are several types of coverage to choose from. Term life insurance is a popular choice because it’s a simple, affordable type of coverage that covers your family during the years they need it most.

Learn more about term life insurance to determine if it’s the right fit for your needs.

In this article:

How does term life insurance work?

A term life insurance policy is a rather simple, straightforward product that provides protection for you and your family for a set period of time. It’s also one of the most affordable types of life insurance coverage out there.

The key characteristic of this type of life insurance is right in its name — the term length of the policy. That’s the number of years the policy provides protection for your beneficiary or beneficiaries. Common term lengths are 10, 15, 20 or 30 years. The way term life insurance works is if you were to pass away during the term of your coverage, the life insurance payout of your policy, known as a death benefit, would go to the beneficiary or beneficiaries you designated.

Depending on how your beneficiaries choose to use it, the death benefit can go toward your partner’s rent and/or mortgage; your children’s education; paying off any lingering debts; and in the event of your death, it can help those who are mourning your loss address their financial needs and worries during a difficult time. That death benefit is typically not taxed, either.

Term life insurance can provide coverage during the years when families may need it most. For example, a parent with young children may want life insurance coverage that lasts at least until the kids finish college. Or a couple that just purchased their first home may choose a term length that lasts until their mortgage is paid off. An online life insurance calculator can help you figure out what term length is right for you.

What happens at the end of a policy’s term length?

So let’s say you get term life insurance. You might be wondering what happens when you reach the end of the term length.

Well, coverage ends. At the conclusion of the policy’s term length, you can either elect to have your life insurance coverage end or have it continue in increments of one year, which is available due to guaranteed renewability. However, your life insurance premiums will be much higher at that time if you choose to continue your coverage after the term is up. That’s why it’s important to buy the right amount of life insurance coverage from the start, or buy another, smaller policy when your needs change. It’ll save you money in the long run, instead of you needing to extend your life insurance coverage later in life.

Your family only gets money from the life insurance company if you die. That’s why not seeing that money again is actually the best-case scenario: it means you’re still alive. It’s like car insurance – the insurance company doesn’t send back the money you paid just because nothing bad happened. You’re paying for coverage in case something does go wrong. Term life insurance is the same – the plan is not to die, but you get life insurance just in case.

How do you know if you need term life insurance?

If you have people in your life who are financially dependent on you, then you probably need life insurance. You might need life insurance if:

There are various other scenarios where people choose to buy life insurance, but these are some of the most common. Fundamentally, life insurance is purchased so that the policyholder has the peace of mind that their beneficiary or beneficiaries will be financially protected if anything were to happen to them.

Life insurance needs aren't one-size-fits-all.

Calculate your needs

How much term life insurance do you need?

Life insurance needs aren’t one-size-fits-all. However, a common rule of thumb is to have life insurance coverage that’s five to ten times your annual income. And the term of the coverage should last for the duration of your substantial financial responsibilities — until the mortgage is paid off or your kids are in college.

We know we say this a lot, but only because it’s important: The purpose of life insurance is that it should protect your beneficiary from financial hardship should anything happen to you. Therefore, the amount of coverage you purchase should take into account your expenses, such as the mortgage or rent, child care, debts, and any other day-to-day bills you or your family may have. (Remember: Instead of doing the math in your head, let an online life insurance calculator do the work for you.)

Once you choose a coverage amount and term length, you’ll pay a monthly premium over the course of that term. While paying monthly for that amount of years might sound a little overwhelming, your coverage is usually the most affordable if you get it while you’re young and healthy.

If you’re curious what your monthly premium might be, you can quickly and easily get life insurance quotes online. For example, a 30-year, $500,000 life insurance policy would cost about $35 per month for a healthy 35-year-old woman.

How much does term life insurance cost?

Term life insurance is generally pretty affordable, especially for younger, healthier individuals. Here are some examples of the cost of coverage for those in excellent health.

Quotes for term life insurance

AgeGenderTerm lengthCoverage amountCost
30Male30$500,000$36.36 per month
30Female30$1,000,000$54.46 per month
35Male20$500,000$23.34 per month
35Female20$750,000$27.49 per month
40Male15$600,000$26.29 per month
49Female15$800,000$33.05 per month
Source: Quotes for the Haven Term policy sold by Haven Life Insurance Agency (Haven Life)
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What customers say about their rates

How to buy term life insurance

As with anything, you’ll start by researching what you need, shop around for the best value, and then commit to buying something — and this being the 21st century, you can do all of that online. In fact, we happen to think we’ve made that entire process simple here at Haven Life, a MassMutual-backed life insurance agency. Let’s break it down for you:

First, you’ll calculate your needs or, if you already know how much you need, get quotes for coverage. Next, you can easily apply online. The application will ask questions about your age and general health to determine your final pricing. If approved, coverage can start that day.

The only thing you might not be able to do online? Take a medical exam. Most medically underwritten term life insurance policies require a medical exam to finalize coverage.

There are some cases, however, where a medical exam may not be needed. Take Haven Life’s InstantTerm process, for example — some qualified applicants 59 and under and who are applying for up to $1 million in coverage may be able to finalize coverage without a medical exam. Keep in mind: It’s very important to be honest when completing the application. The issuance of the policy or payment of benefits may depend upon the answers given in the application and their truthfulness.

While it may be tempting to seek simplified issue or guaranteed issue policies that never require a medical exam, medically underwritten term life insurance is usually a good choice for healthy people looking for affordable coverage in amounts greater than $250,000.

Which is better, term life insurance or whole life insurance?

All this being said — why choose term life? Aren’t there other life insurance policy options out there? There are, but there’s a reason term life insurance is an affordable choice.

After all, life insurance is all about protecting loved ones who rely on some or all of your income. This usually applies when you have minor children or a spouse that you share financial obligations with. You’re unlikely to have people who are 100% financially dependent on you for your entire life, though. That’s where the “term” part comes in handy.

Permanent life insurance is another type of coverage that comes in a few varieties, but the most common are whole life and universal life. Unlike term life insurance, permanent policies cover policyholders for a lifetime and offer a cash value component that can grow or decrease over time. The complexity of these products is also why you should work with a financial professional or agent to purchase and manage it.

Additionally, term life insurance premiums are more affordable than whole life or universal life policies, which often makes them attractive to younger, cash sensitive families. For example, a healthy 35-year-old woman in excellent health could purchase a 30-year, $500,000 Haven Term policy starting at about $35.4 per month. A $500,000 whole life insurance policy for that same man would start at about $487.64 per month [source: State Farm].

Whichever type of life insurance you choose, the end goal is the same: protect the ones you love in a way that makes sense for you.

Life insurance needs aren't one-size-fits-all.

Calculate your needs
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About Louis Wilson

Louis Wilson is a freelance writer whose work has appeared in a wide array of publications, both online and in print. He often writes about travel, sports, popular culture, men’s fashion and grooming, and more. He lives in Austin, Texas, where he has developed an unbridled passion for breakfast tacos, with his wife and two children.

Read more by Louis Wilson

Our editorial policy

Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our editorial policy

Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.

Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.

Our disclosures

Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.

MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.

Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit:

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