Term Life Insurance
Quick Definition
Life insurance that provides coverage for a specific period (10-30 years) at a fixed premium with no cash value.
Key Takeaways
- Term life is 5-15x cheaper than whole life for the same death benefit
- "Buy term and invest the difference" is recommended by most financial planners
- Match the term length to your longest financial obligation
- Lock in rates while young and healthy — premiums increase significantly with age
What Is Term Life Insurance?
Term life insurance provides a death benefit to beneficiaries if the insured person dies during the specified policy term, typically 10, 15, 20, 25, or 30 years. Unlike permanent life insurance (whole life, universal life), term policies have no cash value component and no investment feature — they are pure insurance protection. This simplicity makes term life insurance significantly more affordable, typically costing 5-15 times less than comparable permanent policies. Most financial advisors recommend term insurance for the vast majority of people, following the "buy term and invest the difference" strategy. Term lengths should align with financial obligations: covering the period until children are independent, mortgages are paid, or retirement savings are sufficient to replace the income protection.
Term Life Insurance Example
- 1A healthy 30-year-old non-smoker can get a $1,000,000 20-year term policy for approximately $40-50/month.
- 2The same $1M coverage as whole life would cost $800-1,200/month — the $750/month savings can be invested for potentially higher returns.
- 3A 35-year-old buys a 25-year term policy to cover the years until their youngest child finishes college and the mortgage is paid.
Related Terms
Life Insurance
A contract that pays a death benefit to designated beneficiaries upon the insured person's death.
Whole Life Insurance
Permanent life insurance providing lifelong coverage with a guaranteed death benefit and a tax-advantaged cash value component.
Beneficiary
A person or entity designated to receive assets, benefits, or proceeds from a financial account, insurance policy, trust, or estate.
Estate Planning
The process of arranging for the management and transfer of assets during life and after death.
FAFSA (Free Application for Federal Student Aid)
The federal form used to determine eligibility for financial aid including grants, loans, and work-study programs.
401(k)
An employer-sponsored retirement savings plan with tax advantages, often including employer matching contributions.
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