What is term life insurance and how does it work?

Life insurance serves as a cornerstone of your financial plan because it protects what matters most — the ones who you love, and who depend on you to provide for them. It is important for anyone with financial dependents to have life insurance, whether that be your young children or a partner you share a mortgage with. The life insurance beneficiary (or beneficiaries) can use the policy’s death benefit to help cover funeral expenses, meet day-to-day living expenses or plan for the future.

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.

How does term life insurance work?

Other than being one of the most affordable types of life insurance coverage, term life insurance is a rather simple, straightforward product that provides protection for you and your family for a set period of time.

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. 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 help pay the rent and/or mortgage; your children’s education; help pay lingering debts, and in the event of your death, can help those who are mourning your loss to address financial needs and worries during a difficult time. That death benefit is often free from income tax, too.

Term life insurance can provide coverage during the years 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.

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. That’s why it’s important to buy the right amount of life insurance coverage from the start or another, smaller policy when your needs change. It’ll save you money in the long run instead of needing to extend your life insurance coverage later in life.

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. This means:

  • You share financial obligations with a partner or spouse
  • You have children or plan to have them soon
  • You have family members who rely on your income to pay their bills
  • You have cosigned debt — like private student loans — and a cosigner who would be on the hook for them
  • Or, you want to leave behind a financial legacy to your loved ones to help with burial expenses or to make life a little bit more comfortable

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.

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 5 to 10 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.

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, childcare, 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 healthy 35-year-old woman in excellent health could buy a 30-year, $500,000 Haven Term policy, issued by MassMutual, for starting at $35.40 per month.

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:

30-year term life insurance rates
AgeCoverage$250,000$500,000$750,000$1,000,000
30Male$26.53$36.26$51.39$66.52
Female$21.52$30.23$42.34$54.46
35Male$30.32$41.42$59.14$76.85
Female$25.14$35.40$50.09$64.79
20-year term life insurance rates
AgeCoverage$250,000$500,000$750,000$1,000,000
30Male$17.43$22.48$30.72$38.96
Female$14.99$19.46$26.19$32.92
35Male$18.06$23.34$32.01$40.67
Female$15.37$20.32$27.49$34.65
10-year term life insurance rates
AgeCoverage$250,000$500,000$750,000$1,000,000
30Male$11.94$14.72$19.09$23.45
Female$10.93$13.00$16.51$20.01
35Male$12.55$15.59$20.38$25.17
Female$11.04$13.43$17.15$20.87
Source: Haven Life

How to buy term life insurance

The internet has completely revamped the process of researching and purchasing life insurance. A process that could take several weeks may now be accomplished conveniently online with purchasing experiences like ours at Haven Life, a MassMutual-backed life insurance agency.

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 to understand your age and health better 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 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 don’t involve 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.

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Term life insurance versus permanent 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.

The purpose of life insurance is to protect 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 here for young families.

Permanent life insurance, on the other hand, 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 man in excellent health could purchase a 30-year, $500,000 Haven Term policy starting at about $41.25 per month. A $500,000 whole life insurance policy for that same man would start at about $561.59 per month.*

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.

Term life insurance coverage provides a simple, affordable way to help financially protect your family from the worst-case scenario.

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.

Your family only gets money from the life insurance company if you die. That’s why not seeing that money again is 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.

It’s not just easier life insurance, it’s an easier life.

Learn about the perks that come with being a Haven Term policyholder.

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*Whole life insurance quote is from State Farm Life Insurance Company.

Real Rate is based on your application and third party data obtained during underwriting.

Haven Term is a Term Life Insurance Policy (DTC 042017 [OK1] 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. Policy and rider form numbers and features may vary by state and may not be available in all states. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Our Agency license number in California is OK71922 and in Arkansas, 100139527.

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