Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted on Help Smart Phone and MEL Magazine.

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent

UPDATED: Mar 19, 2020

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Term of life insurance is one of several types of policies in a group of products that also includes whole, universal, and variable life insurance. Term life is far and away the most popular form of life insurance in this country. It has a long history in America, dating back to the eighteenth century.

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Unlike other forms of life insurance products, term life insurance is sold as a straight up insurance policy rather than an investment.

You’ve probably seen advertisements on television for term life policies designed for specific groups of people like senior citizens. Providers advertise very affordable rates and coverage that cannot be denied.

Term Life Insurance Defined

Term life insurance is so named because the policy is in force only for a specified period of time, otherwise known as the “term”. As the purchaser, you may buy a term life insurance policy covering a span of 10 years. During that 10-year term, you will pay a relatively consistent monthly premium while your beneficiaries will be guaranteed a policy payout in the event that you pass on.

A typical term life insurance policy will be offered for 10 years. However, terms are flexible and can be issued for 15, 20, or even 30 years. The length of term that an individual customer chooses depends on his age and current life circumstances.

A variation of the standard term life policy is a product called the “annual renewal term”, or ART. The ART differs slightly from the standard term policy in that terms are generally very short; sometimes as short as one year. At the end of the term the policy is automatically renewed for a new term of the same length, but at a slightly higher premium. This auto renewing of shorter terms can go on for 20 to 30 years.

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Benefits of Term Life Insurance

Perhaps the greatest benefit of term life insurance, and the one that attracts the attention of so many customers, is the relatively low cost of the premiums. It’s not unheard of to see a $500,000 policy offered for $15 to $20 per month. By contrast, other forms of life insurance can be upwards of several hundred dollars per month. Term life insurance can be more expensive under certain conditions we’ll discuss later.

Another benefit to term life insurance is that many companies offer policies with no medical exam necessary. While this may seem like a risk to the insurance companies, they take into account where you live, your age and income, and other factors which are then compared to actuarial tables used to calculate average life expectancy. They can get a pretty good idea of how long you’ll live, barring any unforeseen circumstances.

Actuarial statistics have proven pretty reliable for the purposes of issuing term life insurance. Customers who develop serious and fatal illnesses on the short end of the term tend to be few in number. So while the insurance company may lose money on a handful of policyholders, in the long run, they do well based on the fact that most will not make a claim until the later stages of the term.

Disadvantages of Term Life Insurance

The primary disadvantage of term life insurance is that it offers no tax benefits or investment income.

It is sold as a cash-for-service product much the same way your auto or home owner’s policy is structured. With investment-based insurance policies, contributions can be made with pre-tax dollars, allowing the policy to build value before income taxes become due. With the term life insurance policy, you make monthly premium payments out of your normal savings or checking account.

Adjustable premiums are another disadvantage of term life insurance. Although your insurance company cannot raise your premiums above a specified amount as dictated by the policy, it does have some wiggle room to move the price up or down based on current market conditions.

You may pay a monthly premium or $15 for the first two to three years, but then see an adjustment to $20 per month if financial conditions warrant. To some, a minor adjustment is not a big deal. But to others, even a small amount like $5 per month could be a deal-breaker.

Finally, the last disadvantage of term life insurance comes in the form of income replacement. A primary breadwinner may want his insurance policy to provide 20 to 30 years of replacement income after he passes. Term life insurance was never designed to provide replacement income for the long term. It should cover your dependents while they adjust to the loss of your income. Thankfully, you can purchase term life which offers significant income replacement, but that will raise the monthly premiums to an amount that could well exceed $100.

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