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Term Life Insurance 101

Step 1: Grasp the Essentials

What is life insurance?

Life insurance helps provide financial security for your loved ones in the event of your death.

A life insurance policy pays a guaranteed amount of money (a death benefit) that offers a financial cushion and helps protect your family when they need it most.

What does life insurance cover?

Life insurance can protect your loved ones in a variety of ways. It can help:

  • Replace lost income and cover living expenses, like rent or a mortgage, for your family
  • Spare your family from needing to pay off debts you leave behind
  • Provide for your kids' care if you are a stay-at-home parent
  • Cover burial, estate taxes and other final expenses
  • Fund college expenses for your children
  • Cover unpaid medical bills or unpaid taxes
  • Create an inheritance or provide supplemental retirement income through a tax-free death benefit

What are the different types of life insurance available?

There are numerous life insurance products available. If you're shopping for a policy for the first time, it can feel like navigating a maze. While blindfolded.

To keep it simple, there are two main types of life insurance: term and permanent. Within permanent life insurance, there are two variations you should pay close attention to: whole life insurance and universal life insurance.

Life Insurance
Term
Permanent
Whole
Universal

Term life insurance

Term life insurance is one of the simplest and most affordable types of life insurance and is characterized by its determined length (term) of coverage. For example, a healthy 35-year-old man can purchase a 20-year, $500,000 Haven Term policy for about $25 a month.

Term life insurance is a popular choice because of its:

  • Affordable monthly premiums
  • Low maintenance — you pay the premium, and you're covered
  • Guaranteed death benefit (amount paid if policy holder dies)
  • Specified term length — typically 10, 15, 20 or 30 years

Most people purchase a term life insurance policy because they want a simple, high-quality product that offers guaranteed coverage parameters. As long as you pay the required premiums, the policy remains in effect and pays your beneficiary a guaranteed death benefit if you die within the coverage duration. It's a no-stress financial cushion.

One potential drawback to term life insurance is if you find you need to extend your term length, once you're older or in poor health, it can be very expensive.

Your premium depends on a variety of factors, including:
  • The policy's value and term length
  • Age and sex
  • Health, including any tobacco use
  • Family medical history
  • High-risk occupation and extracurricular activities

We believe term life insurance is the right choice for most people. If you know term life insurance is for you, visit our life insurance calculator to determine how much coverage you need.

If you want to learn about permanent life insurance, read on.

Life insurance isn't one-size-fits-all. Click here to find out how much coverage you really need.

Permanent life insurance

Permanent life insurance provides coverage for a lifetime rather than for a term length and comes in two main forms: whole and universal.

Because permanent life insurance provides lifetime coverage, it has considerably higher premiums than term insurance. For example, a $500,000 whole life insurance policy for a healthy 35-year-old male would likely cost more than $500 per month, compared to just $25 per month for a Haven Term policy.

What is policy cash value?

Like a savings account that grows with regular deposits (your premium payment), a permanent policy has a certain value that can grow or shrink over time. This depends on many factors including any dividends, which are not guaranteed, interest that may be credited to your account, and whether you borrow or withdraw money.

Unlike term life insurance, permanent life insurance has a cash value component that can grow or decrease over time. You can borrow or withdraw money from the policy cash value and spend it as you wish. Loans and withdrawals will impact the policy's cash value and death benefit, however, and may result in tax liability.

Bottom Line: Should you choose term or permanent life insurance?

Permanent life insurance can be a complex product, which is why people often consult a trusted financial professional when considering it. Furthermore, the high premiums can cause people to choose less coverage than they really need or cancel a policy if they can no longer afford the premiums — putting their loved ones' financial interests at risk.

Our advice?

For most people, term life insurance is a sound choice. You get affordable coverage, no hassle, a clear structure and quality protection for your loved ones.

Term life insurance costs less than your half of a dinner date. Get your free quote.

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