Everything to Know About Term Life Insurance

term Life Insurance

Everything to Know About Term Life Insurance

Life insurance is a great way to safeguard the future of your family and loved ones in case of your demise. If you are considering buying a life insurance policy, looking into term life insurance is definitely worth it.

What is Term Life Insurance Policy?

A term life insurance is probably one of the simplest life insurance policies available today.  In a term life insurance policy, you pay a premium for a set period of time. This time duration may range from 10 to 30 years. However, if you die during this timeframe, the insurance provider will pay the benefits to your family or whomever you have chosen as your beneficiaries.

Term life insurance policy is comparatively cheaper than other insurance policies. However, this policy offers no cash value or payout once it expires. The only time you can benefit from term life insurance is when you pay the premium, and the insurer will pay your beneficiaries if you die while your term policy is valid.

How Does Term Life Insurance Policy Work?

Think of term life insurance as a contract or an agreement between you (the policy owner) and the insurance company. When you buy the insurance, you agree to pay a monthly premium for 10 to 30 years. In return, your insurer will promise to pay a specific amount to your nominated beneficiaries if you die during the period in which you have to pay the premium.

The Assessment Process

The insurance company will assess the likelihood of your survival before offering you term life insurance. Therefore, the insurer will assess your medical records, occupation, lifestyle, current health, etc. The insurer may even look into any hobbies that may pose a risk to your life or health.

For example, if you are into scuba diving or skydiving, these hobbies are risky. Therefore, the insurance company may agree to offer you term life insurance, but at higher premium rates.  Similarly, if you work in hazardous or unsafe working conditions, such as oil rigs, you will have to pay a higher premium for your term life policy.

Choosing Your Term Life Policy Duration

This is one of the most critical components of a term life insurance policy. You have to carefully think about how long you need the insurance policy to cover you. For instance, if you have children, you may want to consider a long-term policy to ensure that you have enough for your children to move out and go through college.

The longer term you choose, the more monthly premiums you will have to pay for the covered amount. However, if you wish to get reasonable rates, buying term life insurance while you are young and in good health is best.

Choosing the Payout Amount

Once you know for how long you want the term life insurance coverage, it is time to decide how much you want the insurance company to pay out as benefits to your family members and other beneficiaries. The higher the payout sum, the higher your monthly premiums will be.

Nominating Your Beneficiaries

Once you have decided the duration and how much amount you would want the insurance company to pay out in case of your death, it is time to choose your beneficiaries. You can decide how you would like to split the payout between your beneficiaries.

For example, you can choose that 50% of the money should go to your spouse, and split the remaining equally between your children. While family members are typical beneficiaries, you can nominate anyone. You can even leave the benefits to a charitable organization, trust, or a friend.

Types of Term Life Insurance

You can avail of four types of term life insurance coverage. Each policy offers certain benefits for a specific term.

Level Premium

This is also known as the level term and is the simplest type of term life insurance. In level premium, your monthly premium payment stays the same throughout the policy’s term.

Annual Renewable Term

In this type of term life coverage, you get a cover for one year at a time. You get the option to renew without further medical exams. However, the cost of the policy gets higher each year. Compared to level-term insurance, the premiums for this coverage will be slightly lower initially. If you are thinking about renewing the policy for 10, 20, or 30 years, your premiums will rise considerably higher than level premium insurance.

Return of Premium

This term life policy pays back a portion of the entire premium you paid if you outlive your policy expiration date. Sounds good, right? However, there is a catch. The premiums will be two to four times higher than the level term insurance policy.

In case your financial situation changes and you decide to cancel the policy, you may only get a partial premium in return, or nothing at all.

Guaranteed Issue

A guaranteed issue term life insurance does not require a medical exam. The insurer will ask you simple health-related questions, and that is all. However, the insurance provider will consider you a high-risk prospect by default. Therefore, the premiums will most likely be higher than other types of term life insurance.

5 Benefits of Term Life Insurance

Here are some of the benefits term life insurance offers.

  • Term life insurance offers affordable premium payments because you, the policy owner, do not receive any payouts. The only payment the insurance company will release is the amount both parties agreed upon to pay in case of your demise.
  • You can secure a higher coverage payment to cover you till the age of 99 with long-term life insurance at low premiums.
  • You get tax benefits; as the premiums you pay for a term life insurance are deductible from your taxable income.
  • You can also choose whether the nominee gets a lump sum payment, monthly income payment, or both.
  • You can add more protection on top of your term life insurance, including critical illness, permanent disability, and an accidental death rider.

5 Factors That May Impact Your Term Life Insurance

Term life insurance policy terms and conditions and premiums may differ for each person. This means certain factors will play a decisive role in your term life insurance.

  • Your age – younger people will get lower premium payments. The older you get, the higher your premiums will be.
  • Medical history – this includes your personal and family medical history. If you have a pre-existing medical condition or have a history of medical conditions, such as coronary heart disease in your family, your premiums will be higher.
  • Your Lifestyle and Habits – if you are a chain smoker or drink alcohol, insurance providers will consider you a risky candidate and ask you to pay higher rates. However, you can follow a healthy lifestyle to secure lower premiums.
  • Gender – according to studies, women tend to live longer than men. Therefore, the insurance company will offer lower premiums for women.
  • Duration – the smaller your policy term, the lower your premium rates.

4 Things to Consider When Choosing a Term Life Insurance Policy

While many insurance companies may offer you term life insurance, here are some factors to consider before buying.

  • Always choose to pick a reliable insurance company such as Lemonade.
  • The amount offered by the insurer will be enough for your family’s needs once you are gone.
  • Choose an insurer with a CSR Ratio of 90% or more. This shows that the insurance company has a history of paying the claim settlement quickly.
  • Make sure the terms and conditions are suitable for you, without any hidden costs and clauses to void the policy.


Now that you know everything about term life insurance coverage, it is time to make a decision. Lemonade is an insurance company that can offer you a term life insurance policy with no medical exams at a very reasonable price. Get a quote today!