Death is a fact of life, and it’s important to be prepared, even if it’s a topic that most people would prefer not to confront on a daily basis.
Even if you don’t currently have dependents like a spouse or children, or major debts that would carry on after you’re gone, it’s not too early to consider a term life insurance policy. Plus, the older you get, the more expensive this life insurance becomes—so you might as well lock in a great rate while you’re young and healthy.
Term life insurance is one of the more popular types of life insurance out there. It’s simple to set up and affordable to maintain. Some life insurance companies, like Lemonade, don’t even require you to undergo a medical exam to qualify for coverage.
Also referred to as pure life insurance, term life insurance provides coverage to the policyholder’s loved ones (or any beneficiary) for a certain amount of time (generally between 10 to 30 years). When the term expires, the policyholder can renew it for the same or longer term, or let their policy lapse.
Note that term life insurance differs from a whole life insurance policy (also known as a permanent life insurance policy). Permanent life insurance offers cash value to and provides permanent coverage until your death.
If you’d like more info on those distinctions, we put together a guide to the main differences between these policies.
How does a term life insurance policy work?
In general, the insurer will determine a premium—the amount you’ll pay every month—based on factors like your age, sex, and current health. You may be required to take a medical exam (although it’s worth noting that Lemonade’s term life offering doesn’t require such an exam).
Some insurance companies will ask about your driving record, present medications you’re taking, smoking status, occupation, and hobbies.
If the policy holder passes away during the policy term, then the insurer would likely owe the “death benefit” to the policy’s beneficiaries. Beneficiaries can use this money, usually not taxable in most cases, to pay for health care and funeral costs, consumer debts, mortgages, or anything else.
Should the policy expire before the policyholder’s death, the beneficiaries won’t receive a payout. At this point, since you’re still alive—hooray!—you’d have the option to purchase a fresh term life insurance policy, though your new monthly premiums would be recalculated based on your age at the time.
Which length should I choose for my term life policy?
The term life insurance policies that Lemonade offers are available for terms ranging from one to 30 years. This policy can help ensure your beneficiaries are protected if you pass away.
Since term life insurance premiums tend to rise as you age, many people opt for as long a term as a way to secure a favorable rate. Your premiums during this entire period will be locked in, and they won’t change.
Why choose a 10-year term life insurance policy?
A 10-year term life insurance policy has a level (unchanging) premium and a specific death benefit. Your coverage will remain intact as long as premiums are paid. But that’s the case for any length of term you choose, so why would you go with a 10-year policy?
There are several reasons to choose a shorter term policy, such as:
- You’re an older adult with financial responsibilities
- You want protection while your children are young and at home with you
- You may also want to supplement coverage available through Social Security or other sources of income that could be lost if you die unexpectedly.
- You have shorter-term life insurance needs
- Your mortgage has been paid off, so there is no need for coverage against loss of income due to death if something were to happen to you (and no need for coverage against loss of home equity)
Why choose a 20-year term life insurance policy?
Perhaps you decide to split the difference between available options, and opt for a term life insurance policy that will remain active for 20 years.
Who might this choice be a good fit for?
- Parents of young children who’d benefit from financial protection until they graduate high school or college
- Cost-conscious insurance buyers who want a longer-term policy and don’t want to spend the money on a whole life policy
- People with co-signed debts (meaning one of more of your family members has taken out a loan with someone else as a co-signer)
Why choose a 30-year term life insurance policy?
The death benefit on a 30-year term life insurance policy can range from a few hundred thousand dollars to a million dollars or more, depending on the coverage you’ve chosen.
Locking in this longer-term policy also means that you won’t have to shop around for life insurance for the next three decades, nor will you have to worry about your premiums fluctuating. You can basically “set it and forget it” (as long as you continue paying those premiums, of course).
A 30-year term life insurance policy is a smart option for young people in a variety of life situations, including:
- If you are newlyweds
- If you have long-term debt or a mortgage
- If you are parents of young or special-needs dependents
- If you need a long-lasting and affordable coverage solution
What happens if you outlive a term policy?
Outliving the term of your life insurance policy is always cause for celebration, so take a second to be grateful. After that, know that your term life policy essentially expires, without any payout.
There are occasional exceptions, such as return of premium (ROP) policies, which Lemonade does not offer. As you might expect, the premiums for ROP policies would generally be higher than they would for a standard term life policy.
What does term life insurance cost?
Since so many factors go into a term life insurance quote, your best bet here is simply to get your life insurance quote.
As we mentioned, Lemonade’s term life offering doesn’t require the hassle of an in-person medical exam, and the application process is 100% digital. Click below to take a big step toward financial responsibility!
Please note: Lemonade articles and other editorial content are meant for educational purposes only, and should not be relied upon instead of professional legal, insurance or financial advice. The content of these educational articles does not alter the terms, conditions, exclusions, or limitations of policies issued by Lemonade, which differ according to your state of residence. While we regularly review previously published content to ensure it is accurate and up-to-date, there may be instances in which legal conditions or policy details have changed since publication. Any hypothetical examples used in Lemonade editorial content are purely expositional. Hypothetical examples do not alter or bind Lemonade to any application of your insurance policy to the particular facts and circumstances of any actual claim.
This post is general in nature. Any statement in this post does not alter the terms, conditions, exclusions, or limitations of policies issued by Lemonade, which differ according to your state of residence. The terms, conditions, exclusions, or limitations applicable to your policy depend upon your unique circumstances, and you are encouraged to discuss your specific circumstances with your own professional advisors. The purpose of this post is merely to provide you with information and insights you can use to make such discussions more productive. Naturally, all comments by, or references to, third parties represent their own views, and Lemonade assumes no responsibility for them.
Coverages and other features described may not be available in all states.