When Term Life Insurance Is Worth It
Term life insurance is worth it under the following circumstances:
- Raising children: Parents with minor children need a consistent, sufficient income to provide a home, clothing, schooling, food (and much more) to raise their children into adulthood. Term life insurance is ideal for this scenario for two main reasons. First, it’s very affordable, so that you can get substantial coverage for income-replacement needs. Second, when the children become adults and leave the home, they are no longer financially reliant on you, and thus, your need for life insurance for this purpose no longer applies.
- Supporting children in college: Many college students rely heavily on their parents for living expenses. Term life insurance is optimal here since you only need protection while they are in college.
- Married and your spouse relies on your income: Whether your spouse works or not, if they rely on your income to support their lifestyle, you need life insurance. Having term life insurance until you retire would be appropriate.
- Pay off debts: Those with a mortgage usually want life insurance to ensure the mortgage is paid off. That way, their surviving loved ones have a place to live that cannot be jeopardized by a lack of funds to make mortgage payments. Other debts, such as credit cards, personal loans, or car notes, still apply. Ultimately, debts are time-limited, and thus it makes sense to buy term life insurance for as long as the debts will last.
- Limited budget: The fact of the matter is that term life insurance is the least expensive type of life insurance. For example, a 40-year-old female can get a $2,000,000 life insurance policy for as little as $42 monthly. If you currently cannot afford much, it’s probably best to start with term insurance. Later on, when your budget has expanded, you can opt for permanent insurance (if that’s what you want).
- Divorce decree: It’s extremely common for a divorce decree to require the person who owes alimony to buy life insurance on themselves. The policy ensures that their death won’t cause a stop in alimony payments. In most cases, life insurance is only required for a limited period, which is why term life insurance is best.
When Term Life Insurance Is Not Worth It
Term life insurance, while very inexpensive, is not a good idea if you need life insurance for the following reasons:
- End-of-life costs: Many Americans are turning to life insurance to cover final expenses because they lack the means to pay for them otherwise. Given that this is a permanent problem, term life would not be suitable. Most term policies expire on or around age 80. Instead, a permanent final expense life policy is optimal for providing lifetime coverage and ensuring your final costs don’t become a burden on your loved ones.
- Income needed for a permanently dependent adult child: If you have a child with a disability, you need permanent life insurance to ensure that when you die, there is money to continue their care. Term life insurance wouldn’t be worth it here, since you’re likely to outlive it. You need coverage guaranteed to last forever so that you can know for certain that your disabled child has the financial means to be cared for.
- High-net-worth estate planning (death taxes): Individuals with an estate valued at over $15 million (or $30 million for families) will be subject to death taxes (up to 40%). Furthermore, these tax bills are usually due within nine months of the estate owner’s death. That leaves little time to come up with a sum of money, often hundreds of thousands or millions of dollars. It’s common for these high-net-worth families to buy life insurance so the death benefit pays the expected death taxes. In this scenario, it would be borderline ludicrous to buy term life insurance. If you outlive the term life policy (which most people do), then there is no policy to pay the death taxes. Instead, permanent life insurance is essential in this situation.
- You’re in poor health: One of the primary drawbacks of term life insurance is that the underwriting is rather strict. This is because insurers take on substantial risk by offering very large amounts of coverage for a very small cost. To manage this risk, underwriting is strict to ensure their policyholder base comprises those they know, with statistical certainty, will not die while the policy is in force. The net effect of this underwriting reality is that people in poor health will simply be unable to qualify. For those with high-risk pre-existing conditions, term life is not a worthwhile endeavor since they are very unlikely to qualify. Rather, they need to seek out permanent policies with much more lenient underwriting or guaranteed acceptance policies with no underwriting at all.
Sample Term Life Insurance Rates
The cost of term life insurance is far lower than that of universal or whole life. Ultimately, the rates depend on the term length, gender, health, and how much coverage you buy. Below are some sample term life prices.
10-year term
20-year term
30-year term
Term Life Insurance Ends, So Is It A Waste?
Some people claim that term life insurance is a waste of money because the policy eventually expires and you don’t get your money back (unless you have a return-of-premium term life policy).
While this is a valid critique, it’s a rather misguided way of assessing the value of a term life policy.
First, consider what the purpose of any insurance is- in this case, term life insurance. The purpose of insurance is peace of mind. You’re paying a premium so that you can rest easy knowing that if a qualifying event occurs, the insurance company will pay the claim.
For example, you pay for car insurance so that if you’re in an accident, you won’t have to pay tens of thousands of dollars to fix or replace your vehicle. Instead, you pay the deductible (the average car insurance deductible is $500), and the insurer fixes or replaces your car. Every car insurance payment you make gives you this peace of mind.
If, after 10 years, you never filed an auto insurance claim, it wouldn’t be accurate to look back on the past decade as a waste of money. Instead, you enjoyed concrete peace of mind for that full ten years, knowing you were protected from losing tens of thousands of dollars.
In a similar sense, term life insurance provides peace of mind. Should you die while the policy is in force, the insurance company will pay the death benefit so your family can maintain their lifestyle, cover funeral bills, or pay off debts such as a mortgage. The fact that the policy expires after 10-40 years does not negate that peace of mind.
Also, it’s very important to remember that term life insurance costs so little precisely because it expires. Permanent life insurance costs 2-30 times as much as term life because those policies last forever, meaning the insurer will one day have to pay a death claim.
So if you don’t like the idea of a term life policy expiring one day, you can definitely opt for permanent life insurance. But doing so will cost you significantly more.
Term Life Vs Permanent Life- How To Choose The Right Type Of Life Insurance
It’s important to select the right type of life insurance to ensure your financial needs are met. It’s unwise to shop for coverage based solely on price. Rather, consider all variables for each policy type to determine the best option for accomplishing your goals.
There is a simple rule to follow: For temporary needs, buy term life insurance. For permanent needs, buy whole life or universal life insurance.
| Policy Features | Term Life Insurance | Whole Life Insurance | Universal Life Insurance |
|---|---|---|---|
| Length of coverage | Usually 10, 20 or 30 years | Forever | Forever |
| Fixed premiums | Often yes, but sometimes premiums increase over time | Yes | Yes & no |
| Affordability | Lowest cost | 2-20x more than term coverage | Always costs 2-5x more than term coverage |
| Guaranteed death benefit payout | Yes | Yes | Yes |
| Builds cash value | No | Yes | Yes |
| Cash surrender value | No | Yes | Yes |
| Policy loans | No | Yes | Yes |
| Potential payout of dividends | No | Yes | Yes |
| Medical exam required | Sometimes | Sometimes | Sometimes |
| Ideal reasons to buy | Temporary needs such as covering a mortgage or replacing income | Permanent needs such as paying for your final expenses | Permanent needs such as estate planning or supplemental income for a surviving spouse |
How Long Of A Term Should You Get?
If you need or want term life insurance, one of the decisions you’ll have to make is how long the term will last. Most companies offer term policies ranging from 10 to 40 years.
Just ask yourself: how long will I need coverage to ensure I have protection that meets my needs? For example, if you want to cover your mortgage, consider how long the mortgage note will last. If you need it for income replacement, consider: how long until your dependents no longer rely on your income?
Then choose a term length that meets or exceeds the duration you need.
Frequently Asked Questions
For most term life policies, when they expire, the insurance company keeps all the premiums you paid. The only time you would get your money back is if you had bought a term policy with an ROP (return of premium) rider. Those stipulate that at the end of the term, the insurer refunds all your premiums.
For affordability, term life insurance is best. For lifetime protection, whole life insurance is best. That said, choose the type of coverage that best suits your objectives. You should buy permanent coverage for permanent needs. On the flip side, it’s best to buy term life coverage for temporary needs is
Your age has a significant impact on how long a term policy you can get. For example, if you’re 70, a 20 year term would be the maximum policy length you could buy.
Some term life policies are renewable, and some aren’t. Renewable policies can usually only be renewed until you reach age 80 or 90. Whether a policy is renewable and how long it can be extended vary by company.
- Nationally licensed life insurance agent with over 16 years of experience.
- Personal annual production that puts him in the top .001% out of all life insurance agents in the nation.
Anthony Martin is a nationally licensed insurance expert with over 16 years of experience and has personally served over 10,000 clients with their life insurance needs. He frequently authors entrepreneurial and life insurance content for Forbes, Inc.com, Newsweek, Kiplinger, and Entreprenuer.com. Anthony has been consulted as an expert life insurance source for dozens of high-profile websites such as Forbes, Bankrate, Reuters, Fox Business, CNBC, Investopedia, Insurance.com, Yahoo Finance, and many more.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
Choice Mutual often cites third-party websites to provide context and verification for specific claims made in our work. We only link to authoritative websites that provide accurate information. You can learn more about our editorial standards, which guide our mission of delivering factual and impartial content.
-
death taxes. https://smartasset.com/taxes/all-about-the-estate-tax
-
the average car insurance deductible is $500. https://www.caranddriver.com/car-insurance/a35824412/average-car-insurance-deductible/
