For those inclined to plan ahead in anticipation of life’s twists and turns, establishing an understanding of the predictability of certain life events becomes paramount. Part of this planning calls for measuring risk, assessing uncertainty and studying financial products like life insurance to manage your financial needs.

Insurance acts as a means to mitigate risk or transfer it from one party to another.  In the case of life insurance, the individual wants to transfer risk from herself to a life insurance company in exchange for paying a monthly (or annual) premium.  This stream of payments will result in the guarantee of receiving a set amount of funds in the future when an insured event could occur. 

These life insurance proceeds come to your beneficiary tax free and ease financial burdens as well as lifestyle trade offs. Depending on your beneficiaries’ needs, you can choose to pay for expenses like burial or cremation, paying off a mortgage, student loans or any other types of debt, or also to replace the deceased’s income in order to maintain the same lifestyle.

Put succinctly, life insurance represents a cost-effective and powerful tool for establishing financial security in the event of your death. And yet, despite this ability to provide substantial financial relief, most people opt to avoid having a sincere discussion about life insurance and planning their lives.

This happens because selecting the “right” policy feels like a cumbersome undertaking.  Understandably, because this entails extensive comparison shopping, taking medical examinations, and not to mention, planning for an event which calls for your own mortality as a triggering event. 

While certainly more difficult than other purchases we make, a step to simplify this decision comes when narrowing your options into the two broad categories of insurance – whole life (permanent) and term life (temporary).

This post walks through the various elements of term life insurance and whether it is worth purchasing for your financial picture.

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    The Life Insurance Industry


    Currently, almost 1,000,000 people work in some capacity in the U.S. life insurance industry.   With that significant amount of employment comes a vast array of products and services from a multitude of companies.  

    Fortunately, because life insurance has largely become commoditized (most policies accomplish the same financial purpose), this provides some comfort knowing it matters more that you get the right type of life insurance and policy details for meeting your financial needs.

    Permanent or Whole Life Insurance


    Permanent life insurance comes in many forms, but generally aims to provide long-term coverage which lasts for as long as the insured person lives- so long as you pay your premiums in a timely manner. Further, this type of life insurance policy also builds a cash value as you pay your premiums and assets backing the policy compound.  

    This sum, also called a cash surrender value, acts as an underlying component of permanent life policies which can provide financial resources for needs that arise in the future.

    By its very nature, permanent life insurance (types of permanent life insurance include products like whole, universal, guaranteed, or variable) lasts for the entirety of the insured’s life and do not expire upon reaching some age.  

    As you pay premiums for permanent insurance, you may have the option of adjusting them, depending on your policy terms.  Finally, permanent life policies also come with higher costs than term life for similar policy coverage, though also higher potential proceeds, depending on the cash value balance.

    Temporary Life Insurance


    As an alternative to permanent life insurance, another category of life insurance comes with temporary life insurance.  Term life insurance falls into this grouping and instead of having coverage last for one’s entire lifetime, term policies expire after a specific term, typically 10, 15, 20, or 30 years. 

    Term life insurance policies often reflect significant flexibility for meeting individuals’ needs because these policies do not have a cash value or permanency component. As a caveat, you should recognize the policy ends after a specified time or reaching a certain age, hence temporary life insurance.  

    However, because these policies only remain in effect temporarily, premiums for term life insurance policies are lower cost than permanent life policies and remain fixed.  The same applies for the total benefit paid to beneficiaries.

    Related:

    What to Know About Term Life Insurance


    → How Much is Term Life Insurance?

    For all types of life insurance, a number of factors affect how much they will cost the insured.  Major variables used for consideration on both term and permanent life insurance include age, health status, medical history, lifestyle choices, hobbies, smoker status, gender, and state of residence. 

    When evaluating online life insurance quotes you receive, make note that not every insurance company offers the same rates for the same coverage amounts for the variables listed above. For this reason, you must comparison shop between insurance companies before selecting a policy to receive the best value.

    Premiums can vary from as low as a few dollars per month to multiple hundreds, depending on the risk involved with insuring you.

    → Benefits of a Term Life Insurance Policy

    Term life insurance often represents the most cost-effective solution to purchasing life insurance.  Because the coverage eventually expires, the premiums you pay for carrying a term life insurance policy amount to far less than you would pay with similar coverage under a permanent policy. 

    This lower cost for a similar policy payout makes term life insurance easier to fit in a budget and also more effective for leveraging your premium dollars.  All things equal, you receive the same level of death benefit from a term life insurance policy for a cost less than permanent insurance.

    Another benefit of term life insurance comes from having a declining need for insurance as you age.  Presumably, as you age, you will continue saving a sufficient amount of money to cover your needs concurrent with having less need for carrying insurance coverage.  

    As an example, you might purchase a term life insurance policy at the birth of your first child for a 30-year term. 

    At the end of the policy, hopefully you will have set aside significant assets during this period toward financial independence and also no longer have a substantial financial need for supporting your children, paying a mortgage, or carrying student loan debt.

    As a result, a large and costly insurance policy should not be necessary. 

    For those in this situation, term life insurance, provides an adequate level of coverage while you need it for an affordable price.

    → Disadvantages of a Term Life Insurance Policy

    Just as term life insurance represents a cost-effective insurance solution, it can also miss on providing some needs for the insured.  In particular, most term life insurance policies only offer coverage for 10, 15, 20, or 30 years. 

    Some companies exist which offer 35-year policies, but the longest term period may not provide sufficient coverage to meet your financial needs. All things equal, applying for a term life insurance policy when young and healthy costs far less than applying for it when you are older. 

    Because the risk of mortality only increases with age, the cost of term life insurance policy will increase with time, costing you far more, becoming cost prohibitive in some instances.

    Because coverage expires when the policy ends, the risk of outliving a policy becomes a real concern for some, particularly those who are younger and in good health.

    Finally, term insurance represents a bare minimum type of life insurance coverage meant solely to provide a death benefit upon the insured dying. Permanent life insurance policies offer a cash value for the policy in addition to potential insurance riders and endorsements which can offer supplemental benefits.

    Term life insurance acts as a stripped down version of insurance and serves the sole purpose of protecting against death within a policy period.

    → Added Benefits and Financial Products

    Some term life insurance companies bundle other products with their standard term life insurance policies.  This adds greater value to the decision of purchasing insurance to protect you and your family.

    Companies like Fabric offer life insurance tailored to young families as well as will and estate planning services. Further, Fabric built a feature allowing you to share your term life insurance policy details with your beneficiary directly.  This functionality allows for easier financial planning.

    With this information, Fabric also offers the ability to create free wills online. Additionally, the company provides a free site for couples to sync up their family’s finances and get their financial planning on the right foot.

    Offering this holistic suite of services demonstrates that, compared to other companies that sell insurance, Fabric takes a broader approach to your family’s financial wellbeing.

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      Is Term Life Insurance Worth It?


      When deciding between a term or permanent life insurance policy, the right fit ultimately depends on your specific needs and financial circumstances. 

      For the majority of the population, who will have a large but decreasing financial need, term insurance appears as the most cost-effective solution.

      Despite term insurance’s limitations as compared to permanent insurance (no building cash value nor indefinite coverage), term life insurance also acts as a valuable and affordable way to provide financial peace of mind. 

      For someone looking for a budget-friendly way of providing financial security, term life insurance represents your best option.  As a final point of caution, before selecting an insurance policy, be sure to evaluate your options not only with different insurance companies, but with other investments and savings strategies.

      Term Life Insurance Companies


      After walking through the items to consider for term life insurance above, the next step involves comparison shopping for life insurance.  Make no mistake about it, this can be annoying.

      Fortunately, with the advent of the internet, one remarkable feature from shopping for life insurance in the past comes from no longer needing to talk to an agent/salesperson to get a quote. 

      Because many companies operate in this space, we have curated a list of top online companies that sell life insurance to save you time and effort.  To make this list, the companies included must make shopping for life insurance easy by keeping the process online and quick.

      And remember, getting a quote doesn’t cost you anything! Check out our list below!

      Best Online Life Insurance Agencies - 2020

      BestowHaven LifeFabricEthos
      bestow life insurancefabric life insurance
      ethos life insurance
      Products offered?Term life insurance only.Term life insurance only.Term life insurance and accidental death.Term life insurance.
      Term options10 and 20 years.10, 15, 20 and 30 years.10, 15 and 20 years.10, 15, 20 and 30 years.
      Age AvailabilityFor 20-year policies, 21 to 45 (21 to 43 for male tobacco users); for 10-year policies, 21 to 54.18 to 64.18 to 60.18 to 75.
      Coverage amount availableUp to $1,000,000 for 10- and 20-year terms.$100,000 up to $3,000,000.$100,000 up to $5,000,000.$100,000 up to $1,500,000.
      Medical exam required?No.Depends. A medical exam may not be needed for eligible applicants applying for up to $1,000,000 in coverage. Once an application is submitted, you will find out if a medical exam is needed to finalize your rate. Depends. May be required if more health information is needed. Better rates possible with medical exam.Depends. May be required on policies over $1,000,000 or if more health information is needed.
      Can be declined for coverage?Yes.Yes.Yes.Yes.
      Available inAll states except NY.All states except CA, DE, FL, ND, NY, and SD.All states except MT, CA*, and NY*.All states except NY.
      *Must purchase Fabric Instant (accidental death) first, then can purchase Fabric Premium.
      Prices, products offered and coverage terms effective as of publication.

      About the Site Author and Blog

      In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time.  My job routinely required extended work hours, complex assignments, and tight deadlines.  Seeking to maintain my momentum, I wanted to chase something ambitious.

      I chose to start this financial independence blog as my next step, recognizing both the challenge and opportunity.  I launched the site with encouragement from my wife as a means to lay out our financial independence journey and connect with and help others who share the same goal.

      Disclaimer

      I have not been compensated by any of the companies listed in this post at the time of this writing.  Any recommendations made by me are my own.  Should you choose to act on them, please see my the disclaimer on my About Young and the Invested page.

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