Term life insurance is the go-to choice for young people who want to protect their family

How term life insurance works

Term life insurance covers a 10, 20, or 30-year period. If you die during that period, your beneficiaries get your payout — known as the death benefit. Term life insurance is generally recommended for any adult with a dependent.

The biggest draw of term life insurance policies is the low monthly payments, which are determined by the insurance company after evaluating a person’s age, gender, health, and sometimes driving record, job, hobbies, and whether or not a person smokes. Oftentimes, you’ll need to submit to a medical exam.

There are four steps to purchasing term life insurance:

1. Apply: Online or with an agent, which may include a medical exam
2. Choose a term: Usually 10, 20, 30 years
3. Decide a death benefit amount: Ten times your annual salary is a rule of thumb, however you don’t have to stick to it
4. Name a beneficiary: You can name one person, or multiple people, to get the payout if you die 

How long of a term should I choose?

According to Guardian Life, a good rule of thumb is to choose a term long enough to see your children out of the house and through college. You’ll pay more monthly for a longer term, but it is better to be cautious because you don’t know what the future holds. Also, it is usually easier to get insurance when you are young and in good health.

How much should I select for the death benefit?

When selecting your death benefit amount, you typically select 10 times your annual income. For example, if you make $75,000 per year, then you would purchase a life insurance policy for $750,000. 

However, you aren’t tied to that number. You might want more if you want to pay for your kids’ college, or pay off your family’s mortgage, for example.

Generally, you’ll probably want to get as much life insurance as you can comfortably afford each month. If it would be a struggle to make your premium payments, it’s probably too much for you.

Read More: Here’s how much life insurance you need at every income level

Who should I select as a beneficiary?

After selecting a death benefit amount, you select the beneficiary of your life insurance policy. A beneficiary is the person you select to receive the death benefit — you can pick multiple people, a trust you’ve set up, or a charity, according to the Insurance Information Institute. 

Most couples select their spouse, partner, or trust created for a child as the beneficiary of their life insurance policy.

After completing these steps and being approved by the insurer, you’ll get your monthly payment amount. From there, you’ll start paying for your policy and have your coverage in place. 

Need help deciding on life insurance? Our partner Policygenius can help you compare and buy life insurance policies. Learn more here »

Types of term life policies 

There are several types of term life policies, and some are more popular and expensive than others. Below is a list of the top term life policies, according to the Insurance Information Institute:

1. Level Premium: A level term policy pays the same benefit amount if death occurs at any point during the term (5, 10, 20, or 30 years). This is the most popular type of term life insurance. 
2. Yearly Renewable: If a policy is “renewable,” that means it continues in force for an additional term or terms, up to a specified age, even if the health of the insured (or other factors) would cause him or her to be rejected if he or she applied for a new life insurance policy.
3. Return of Premium: For most types of term insurance, if you haven’t had a claim under the policy by the time it expires, you get no refund. Some insurers have created term life with a “return of premium” feature, which returns part or all of the money you’ve already paid if you haven’t used the policy once your term ends. 
4. Guaranteed Issue:  These policies are easier to get because they don’t require a medical exam and only ask a few simple health questions at most. Also, the policy might not pay a full death benefit for the first few years of coverage, according to Guardian Life.
5. Convertible:  The policy’s owner has the right to change it into a permanent (whole) life insurance without additional evidence of insurability.

What if I outlive my term life insurance policy?

Some insurers also give the option to convert term life insurance into permanent (whole) life insurance through an addendum called a rider. If you want to continue receiving coverage beyond the fixed term, a term conversion rider added to the policy at the outset will allow you to keep your coverage, without the hassle of a new medical exam or applying for a new policy, according to Policygenius.

Need term life insurance? Our partner Bestow provides affordable term life insurance in minutes, not weeks. Learn more here »

How much term life insurance costs

The cost of coverage varies by company, by policy, and by policyholder. We got sample quotes from insurers’ websites to compare rates for a healthy 35-year single, non-smoking female living in Illinois, in excellent health seeking a $250,000 policy with a 30-year term can expect to pay about $30 per month.

You’ll want to get your own quotes before choosing your life insurance provider, but these might give you an idea of what to expect:

Where to buy term life insurance

Most employers offer some sort of group life insurance. However, your employer coverage may not be enough if it’s not 10 times your salary. Additionally, if you leave your job, you lose your coverage.

For that reason, it is smart to have an individual life insurance policy. Your insurance agent for auto or homeowners may offer life insurance. Also, you can comparison shop online for term life insurance providers.

You can find policies through these insurers, or through online agencies, which are backed by major insurance companies. Online agencies let you bypass the need for an in-person insurance agent, and often offer the ability to get a quote and buy your own policy entirely online.