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How Term Life Insurance Works

Among the many types of life insurance policies is term life insurance, which lasts for a fixed duration and charges reasonable premiums. This policy offers policyholders from many backgrounds an effective way to help protect loved ones over a long period of time. Let’s dive deeper into how many term life insurance policies typically work in more detail and some situations where it can help policyholders safeguard their loved ones.

What is term life insurance, and how does it work?

Term life insurance is a life insurance policy that often provides coverage for a specified time period, depending on your preference. If you pass away during the term, your loved ones will receive a death benefit from the insurer as a lump sum or in fixed annuity payments. They can use this death benefit to help with loss of income, pay off debts, and more.

Keep in mind that term life insurance coverage can expire if you don’t pass away during the policy term. You must renew your policy or get a new one to continue your coverage.

How long does term life insurance last?

Term life insurance typically offers term lengths of 10 to 30 years, giving you a wide range of term lengths to suit your needs. Policies with longer terms tend to charge higher premiums for the same death benefit.1

Types of term life insurance policies

Insurers offer several types of term life insurance:2

Level term life insurance

Level term life insurance offers fixed premiums and an unchanging death benefit throughout the policy’s duration. For example, if you get a 20-year level term life insurance policy that costs $50 per month, you will pay $50 per month for all 20 years. These policies offer the most predictable premiums, making it easy to budget for the coverage you need.

Yearly renewable term life insurance

Yearly renewable term life insurance is a one-year term life insurance policy that lets you renew the policy each year without having to go through the full life insurance application process and underwriting. Premiums increase each year you renew the policy. Therefore, these policies may be helpful for short-term needs or policyholders who anticipate changes in their financial situation. 

Decreasing term life insurance 

Decreasing term life insurance lowers your death benefit each year. Premiums remain the same, but tend to be lower than other term life insurance types. These features can make decreasing term life insurance a cost-effective way to help your beneficiaries if you anticipate that they will need less financial support in the future. For example, they may expect to receive an inheritance or run a growing business. It can also work well for policyholders with outstanding debt that diminishes over time, such as a mortgage.

Return of premium life insurance 

Return of premium life insurance refunds your premiums if you outlive the policy, but premiums tend to cost more than other term life policy types. As a result, this life insurance policy could be a helpful tool for more cautious policyholders. It can also work for some policyholders who don’t anticipate passing away during the policy term but want to be particularly careful about protecting loved ones.

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Term life insurance rates

Term life insurance premiums can vary depending on the carrier and plan selected. Here are the average monthly premiums by age for healthy, non-smoking men and women who get a $500,000 term life insurance policy:2

Male Female
30 $30 $25
40 $52 $42
50 $138 $101
55 $241 $180

Premiums can vary by factors such as:

  • Age
  • Health and medical history
  • Coverage amount
  • Occupation
  • Hobbies
  • Smoking status
  • Policy type

Term life insurance vs. permanent life insurance

Term and permanent life insurance are the two broad types of life insurance available. They have some key differences, suiting them to different policyholders:

  • Duration: Term life insurance typically lasts 10 to 30 years, whereas permanent life insurance lasts for life.

  • Cost: Permanent life insurance premiums tend to be higher than term life insurance premiums to account for lifelong coverage and cash value.

  • Cash value: Permanent life insurance comes with a cash value growth component that receives part of each premium and grows tax-deferred. You can access the cash value via borrowing, withdrawals, or surrendering the policy. Term life insurance does not come with cash value.

Is term life insurance right for me?

Term life insurance can suit policyholders in a variety of situations:

You have young children

Until your children reach adulthood, they will likely be financially dependent on you. Term life insurance can help ensure your partner and children are financially covered if you pass away. For example, if you’re about to have a child, a 30-year policy can cover them until they are well into their career and can support themselves.

You’re a business owner

Term life insurance can be a more cost-effective form of business succession planning because its premiums are lower than permanent life insurance. A term life policy can help protect your business by helping ensure your surviving partners can continue covering the business’s expenses and debts, or provide them with funds to buy out your interest in the business. If you pass your business to an heir, the extra money can help give them the help as they learn to take on the business and hire employees if needed.

You’re the sole financial provider for your family 

If you’re the sole financial provider for your family, they’ll need an added safety net if you pass away. With term life insurance, premiums are easier to fit into a single-income budget, and your loved ones can have help in case of loss of income.

You’re a stay-at-home parent

A stay-at-home parent’s role is very valuable since you care for and raise your kids. Providing these services in your absence can financially strain the surviving parent. Term life insurance can help alleviate this strain by paying for childcare, such as daycare or a nanny. This can allow the surviving parent to continue working to provide for your children’s living expenses and financial future.

You have significant debts

Term life insurance, particularly a decreasing term life policy, can protect your loved ones from being burdened with outstanding debt if you pass away. The lower premiums that decreasing term life insurance offers make it easier to keep up on debt payments while you’re alive. Meanwhile, the death benefit can help your beneficiaries eliminate remaining debts if you pass away.

Get a quote for Aflac term life insurance

Term life insurance doesn’t last for life, but offers various term lengths. Additionally, premiums are low, and there are several types to suit different needs. As a result, these can be excellent tools for families with young children, a single income, or a stay-at-home parent. They can also help business owners cover surviving business partners or heirs and assist beneficiaries with liquidating outstanding debts.

Aflac’s term life insurance provides you with an affordable way to protect your loved ones when they need it most. Start chatting with an agent to learn more about our life insurance policies and to get a quote that fits your budget.

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