Term Life Insurance: Understanding How Term Life Insurance Works

Whether you're interested in term life insurance or just looking for help choosing the best life insurance policy for you and your family, we're here with answers and detailed information to guide you through these important decisions.

Whichever type of life insurance you need, the GEICO Insurance Agency and our partners can provide an affordable policy that is perfect for you and your family. Get a life insurance quote online or call us at (888) 532-5433 and let us help you get a policy that meets your needs.

What is term life insurance?

Term life insurance provides coverage for a specific time period and pays benefits if the insured's death occurs during the policy period. Policy periods are usually 10, 15, 25, or 30 years. The policy premiums must be paid timely to keep the policy in effect.

Who is covered by term life insurance?

A term life insurance policy covers a person known as the insured. If the insured's death occurs during the policy period, the people who will be paid if the insured dies are called beneficiaries. These beneficiaries are named in the policy. In many cases, these are people who financially rely on the insured. There can be one or more beneficiaries named in a term life policy.

Why do you need term life insurance?

Term life insurance provides financial help to the beneficiary. Often this money is used to replace income that's lost as a result of the death of the insured. The benefit can also help pay bills, future expenses, and even burial costs.

How does term life insurance work?

Term life insurance is popular for its simplicity, affordability, and the financial security it offers over a specified period. Here's how it works:

Choosing a Term: The first step in acquiring term life insurance is selecting a time period—or term—for your policy. This term usually ranges from 10 to 30 years, depending on your specific needs and financial goals.

Premium Payments: Premiums are paid monthly, quarterly, or annually for the duration of the term. These premiums are typically fixed, meaning they remain constant throughout the term of the policy.

Death Benefit: The primary purpose of term life insurance is to provide a financial safety net for your loved ones in the event of your death. If you pass away during the policy term, your insurer pays out a death benefit to your designated beneficiaries. This benefit amount is the sum for which you were insured, and your beneficiaries can use the money however they want; including but not limited to, covering various expenses, such as paying off outstanding debts, covering ongoing living expenses, or funding educational costs.

Term Expiration: If you outlive the term of the policy, there is no payout. Once the term expires, the coverage ceases, and the policyholder is no longer protected. When this happens, you can opt to renew your policy for another term, convert it into a permanent life insurance policy, or let your coverage lapse.

Conversion Options: Some term policies offer a conversion rider that allows you to convert your term life insurance into a permanent life insurance policy without a medical exam. This conversion option provides flexibility and continuity of coverage, however, premiums for permanent life insurance are typically higher than those for term policies.

What are different types of term-life insurance?

There are several different types of term life insurance policies designed to meet your specific needs and preferences, including:

Level Term Life Insurance: This is the most common type of term life insurance. The death benefit and premium remain constant throughout the duration of the policy term. Terms typically range from 10 to 30 years, providing stable coverage and predictable premiums over the chosen period.

Decreasing Term Life Insurance: Unlike level term insurance, decreasing term life insurance has a death benefit that decreases at a predetermined rate over the policy's lifetime. This type of policy is commonly used to cover specific financial obligations that decrease over time, such as a mortgage. As the outstanding debt decreases, so does the coverage amount.

Increasing Term Life Insurance: In contrast with decreasing term life insurance, this type of policy has a death benefit that increases over time to keep pace with inflation or growing financial responsibilities. As the coverage amount grows, premiums may also increase to reflect the higher risk associated with the rising death benefit.

Annual Renewable Term (ART) Life Insurance: ART life insurance allows policyholders to renew their coverage each year without proving insurability. However, premiums for ART policies increase annually based on the policyholder's age at renewal. While ART can be suitable for those needing short-term coverage, it may become costly over time.

Convertible Term Life Insurance: Convertible term life insurance allows policyholders to convert their term policy into a permanent life insurance policy, such as whole life or universal life, without undergoing a medical examination. This feature offers flexibility, allowing individuals to adapt their coverage as their life circumstances and insurance needs change.

Each type of term life insurance serves different financial strategies and planning needs, so choosing the right one depends on your personal circumstances and what you hope to achieve with your policy.

How much term life insurance should you purchase?

As the insured on a term life insurance policy, you can select an amount that meets your needs. The amount needed usually takes into account providing for someone if you pass away. If small children will be the beneficiaries, you may want an amount that would cover your lost income for the number of years until they turn 18 or graduate from college.

Some other items to consider in the amount of the policy include:

  • College expenses for children
  • Mortgage on a house
  • Outstanding debt (student loans, car notes)
  • Funeral expenses

The GEICO Insurance Agency and our partners can help you get a policy that meets your needs. Get a life insurance quote online or call us at (888) 532-5433.

What are the benefits of term life insurance when compared to whole life insurance?

Term life insurance is usually a less expensive option compared to whole life insurance. This is because term policies are for a set time and amount that will be paid. If the insured is still alive at the end of the policy period, the policy expires and has no value after expiration.

How much does term life insurance cost?

The cost of a term life policy is based on the amount of the coverage and the insured's:

  • Age
  • Health
  • Life expectancy
  • Other lifestyle hobbies, employment, etc.

You may be eligible for a No-Med Exam policy. Instead of a medical exam, this option asks a few detailed health, financial, and hobby questions.

If the policy term expires and the insured is still alive, the policy can be renewed. The premium for the new policy would be recalculated with the insured's current age, health, and life expectancy along with the desired death benefit.

Please note:

The above is meant as general information and as general policy descriptions to help you understand the different types of coverages. These descriptions do not refer to any specific contract of insurance and they do not modify any definitions, exclusions or any other provision expressly stated in any contracts of insurance. We encourage you to speak to your insurance representative and to read your policy contract to fully understand your coverages.

If you choose to get a rate quote online, you will be taken to the website of Life Quotes, Inc or Ladder Insurance Services, LLC. These websites are not owned by GEICO Insurance Agency LLC. Any information that you provide directly to them on their websites is subject to the privacy policy posted on that website, which you should read before proceeding. GEICO Insurance Agency LLC. assumes no responsibility for their privacy practices or your use of either website.

Life coverages are written through non-affiliated insurance companies and are secured through the GEICO Insurance Agency, LLC.