Everything You Need to Know about Term Life and Life Insurance Covers

Getting life insurance is essential for your future. Although it can be hard to imagine the impact of such a tragedy, it is important to make sure that your beneficiaries are taken care of. This article was written to provide you with the information you need to make an educated decision about whether life insurance is right for you, or not. You might be reading this with a sense of fear, but if so, there’s no need to be afraid. Life insurance is available to everyone and is more valuable today than ever before.

What is life insurance?

Life insurance is a type of insurance that provides coverage for death or the loss of income due to injury or illness. It is designed to provide financial protection for individuals and their families in the event of death or disability. The National Association of Insurance Commissioners (NAIC) defines life insurance as a legally binding contract between a policyholder and an insurer, in which the insurer agrees to pay a designated beneficiary a sum of money upon the death of the insured person.

Unlike other assets that depreciate, like stocks and bonds, the cash value of permanent life insurance grows over time. The growth potential assures that your beneficiaries will be better provided for than if you didn’t have this benefit available to them. Insurers such as Northwestern Mutual, New York Life, and MassMutual are among the largest providers of cash-value life insurance products in the United States, according to AM Best’s financial strength ratings.

What is a Term Life Insurance?

While there are many different kinds of life insurance, one of the most common choices is term life insurance. Term life insurance is a type of life insurance that covers you for a set period, such as 10, 20, or 30 years. According to Policygenius, term life insurance accounts for the majority of new individual life insurance policies issued each year in the United States, precisely because of its affordability and simplicity.

Term life insurance provides coverage only while you are alive and pays out the death benefit to your named beneficiaries if you die during the active policy term. If you outlive the term, the coverage simply ends — no payout is made and no cash value is returned, unless you have purchased a return-of-premium rider.

This type of life insurance does not build up any cash value and does not provide coverage for long-term care or other living expenses. For those seeking cash accumulation alongside a death benefit, products such as whole life insurance and universal life insurance — offered by carriers including Prudential Financial, Lincoln Financial Group, and Pacific Life — may be more appropriate alternatives.

However, whether it is a term life insurance or a permanent life insurance policy, it is vital that you understand the significance of having one.

Term Life vs. Permanent Life Insurance: Key Comparisons

Before diving into why life insurance matters, it is helpful to compare the two main categories side by side. The following table uses representative data from Policygenius (2025) and NerdWallet’s 2025 life insurance rate analysis for a healthy non-smoking 35-year-old seeking a $500,000 death benefit.

The importance of a life insurance

Without a life insurance policy, you could find yourself in a situation where you are without the ability to provide for your family. This can be devastating for your loved ones, and it may even lead to poverty in your family if you have dependent children. You have the opportunity to help your loved ones if you choose life insurance over a rainy day or unexpected expense. The LIMRA 2025 Insurance Barometer Study found that 44% of U.S. households would experience financial hardship within just six months of losing their primary earner — underlining how critical this coverage truly is.

A life insurance policy can help your loved ones replace the income you would have provided. It will also protect them from having to pay off any debts you may have carried around. By taking out a policy, you may also be able to provide money that can be used for long-term care or funeral expenses if your family member is diagnosed with a terminal illness. The National Funeral Directors Association (NFDA) reported that the median cost of a funeral with burial in 2024 was $8,300 — an amount that can place a sudden and severe burden on a family without adequate life insurance coverage.

A life insurance policy can also help to provide your family with funds for education, retirement, and other important financial goals. It can be a wise investment that will give you peace of mind and the financial security you desire. Financial planning organizations such as the Certified Financial Planner Board of Standards (CFP Board) consistently recommend evaluating life insurance as a foundational component of any comprehensive financial plan.

Considerations taken before purchasing a life insurance

There are a number of things that need to be taken into consideration before purchasing life insurance. For example, you may get a high value for your family if you have children, but this may not be the case if you don’t have any. The cost of your life insurance policy will vary depending on the type of policy that you choose and the company that you choose to deal with. Ratings agencies such as AM Best and financial analysis firms including Moody’s and S&P Global assess the financial strength of insurers — always check an insurer’s rating before committing to a policy.

Additionally, you should know the advantages and disadvantages of each of the different types of life insurance policies available for you in order to make sure that you get the best possible coverage at the best possible value. In the case of a term life insurance policy, you should also analyze the cost of paying premiums and the cash value on your policy in order to make sure that you get the best possible return on investment. Tools offered by insurers such as Haven Life, Bestow, and Ladder allow you to compare term life insurance quotes online in minutes, often without the need for an agent.

Even though some of these policies can be expensive, they may be a wise investment when considering how much they can potentially help your family. You have the ability to study different life insurance quotes to help you determine what a fair value for your policy is. Many people find that term life insurance quotes are less expensive than permanent policies, and they also give families more flexibility and choices should something happen. According to NerdWallet’s 2025 life insurance rate data, a healthy 30-year-old woman can obtain a 20-year, $250,000 term policy for approximately $13 per month.

Although some people are under the impression that these policies are more expensive than permanent life insurance policies, this is not always true. Term life insurance can be less expensive than a permanent policy that covers the same amount, as it is temporary. Consumer advocacy organizations such as Consumer Reports have consistently noted that whole life premiums can run 5 to 15 times higher than equivalent term life premiums for the same death benefit.

Despite all of these factors that should be considered before purchasing life insurance, there are still some things that you might not already know about life insurance. For example, some people believe that you have to be in relatively good health in order to qualify for an affordable term life insurance policy. While this is generally true, there are some other options available which can lower the cost of your premiums even if you are not as healthy. Guaranteed issue life insurance and simplified issue policies — available through providers such as Mutual of Omaha and Gerber Life — require no medical exam and are specifically designed for individuals with pre-existing conditions. The state insurance regulator in your state, overseen at a national standards level by the NAIC, can also provide guidance on consumer protections in your region. Moreover, you should also be aware of all the different types of coverage available including whole and universal, which can provide additional benefits.

Life insurance is a dense subject, and you should take the time to fully understand all the ins and outs of life insurance before purchasing one. This will help make sure that you get the best possible life insurance policy while also ensuring that it is a wise financial choice. Resources such as the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) and the USA.gov life insurance guide offer free, unbiased educational materials for consumers navigating this decision.

By taking the time to fully understand all of these different types of life insurance policies, you can make an educated decision about how important it is for you to have life insurance coverage. The decision could be as simple as learning more about term life insurance, or something that you may be completely unaware of. Either way, taking the time to do your research will help ensure that your choices are wise and well-informed.

Frequently Asked Questions

What is the difference between term life insurance and whole life insurance?

Term life insurance covers you for a specific period (such as 10, 20, or 30 years) and pays a death benefit only if you die within that term. Whole life insurance is permanent — it covers you for your entire lifetime, builds cash value over time, and typically costs significantly more. For most families focused on income replacement, term life is the more cost-efficient choice, while whole life is better suited for estate planning or lifelong financial obligations.

How much life insurance coverage do I actually need?

A widely used guideline is to carry coverage equal to 10 to 12 times your annual income. However, your actual need depends on factors such as outstanding debts (including your mortgage), the number of dependents you have, future education costs, and your spouse’s income. The CFP Board recommends working with a Certified Financial Planner to calculate a precise coverage figure based on your full financial picture.

How much does term life insurance cost per month?

According to Policygenius’s 2025 rate data, a healthy 35-year-old non-smoking male can purchase a 20-year, $500,000 term policy for approximately $26 per month. Premiums rise with age, tobacco use, and health conditions. Women generally pay lower premiums than men of the same age due to longer average life expectancy.

Can I get life insurance if I have a pre-existing health condition?

Yes. While standard term life policies require underwriting that evaluates your health, there are alternatives for those with pre-existing conditions. Guaranteed issue life insurance policies — available through carriers such as Mutual of Omaha and Gerber Life — require no medical exam or health questions. Simplified issue policies offer another middle-ground option. Premiums will typically be higher, and death benefits may be lower than standard policies, but coverage is accessible to most applicants.

Are life insurance death benefits taxable?

In most cases, life insurance death benefits are not subject to federal income tax when paid directly to a named beneficiary, as established under IRS Topic 805 and IRC Section 101(a). However, if the death benefit is paid to your estate rather than a named individual, it may be subject to estate taxes. Cash value withdrawals and policy loans may also have tax implications. Always consult a tax professional for advice specific to your situation.

What happens if I outlive my term life insurance policy?

If you outlive your term policy, the coverage simply ends and no benefit is paid. At that point, you have several options: you can purchase a new term policy (at rates based on your current age and health), convert to a permanent policy if your contract includes a conversion rider, or allow the coverage to lapse if your financial obligations have decreased. Some insurers — including Protective Life and Banner Life — offer return-of-premium riders that refund your premiums if you outlive the term, though these add cost to the monthly premium.

What is a life insurance beneficiary and how do I choose one?

A beneficiary is the person or entity you designate to receive the death benefit when you pass away. You can name a spouse, child, trust, charity, or any other individual or organization. It is advisable to name both a primary and a contingent (backup) beneficiary. The NAIC recommends reviewing your beneficiary designations after major life events such as marriage, divorce, or the birth of a child.

Does employer-provided life insurance replace the need for a personal policy?

Employer-provided group life insurance is a valuable benefit, but it is typically not sufficient on its own. Most employer plans provide coverage equal to only one to two times your annual salary — far less than the recommended 10 to 12 times. Additionally, employer coverage is generally not portable, meaning you lose it if you change jobs or are laid off. The U.S. Department of Labor’s EBSA recommends supplementing employer coverage with an individual policy to ensure continuous, adequate protection.

What is universal life insurance and how is it different from term or whole life?

Universal life insurance is a type of permanent life insurance that combines a death benefit with a flexible cash value component. Unlike whole life, universal life policies allow you to adjust your premium payments and death benefit amount within certain limits. The cash value earns interest at rates set by the insurer. Providers such as Prudential Financial, Pacific Life, and Lincoln Financial Group offer various universal life products. This flexibility makes universal life appealing for long-term financial planning but also more complex than term life insurance.

How do I compare life insurance companies before purchasing a policy?

When comparing insurers, evaluate financial strength ratings from AM Best, Moody’s, and S&P Global — all of which publish ratings on major carriers. You should also review customer satisfaction scores from J.D. Power’s annual life insurance study, complaint ratios reported by the NAIC, and policy features such as conversion options and available riders. Comparison platforms such as Policygenius and NerdWallet can help you evaluate multiple quotes and features side by side in one place.