The Covid pandemic has certainly brought financial security into sharp focus for many families. Interest in life insurance shot up in 2021 as people looked for ways to provide some financial certainty in very uncertain times. Term life insurance, always a popular choice because of its simplicity, became a go-to choice for many life insurance shoppers this year.
Term life insurance is great for families with children and people who don’t want to pass large debts on to others.
Reasons for buying term life insurance often include:
- Income replacement: This means providing funds to your family that would replace your income if you unexpectedly pass away. The money could be used to pay regular bills that your current income covers. To get an estimate for this, multiply your annual income by the number of years you’d want the income replacement.
- Large debts: If someone would be responsible for a large debt if you pass away, like a mortgage, you can use term life insurance to provide the funds. You can match the length of the debt to the closest term life length, such as 20-year term life for a 20-year mortgage.
- College tuition: Wrapping children’s college tuition into your life insurance amount is a way to ensure they will have funds for college if you’re no longer around.
- Funeral expenses: Many people choose a life insurance amount that includes some money for funeral expenses.
How Does Term Life Insurance Work?
When you buy term life insurance you’ll choose the length of your coverage, such as 5, 10, 15, 20, 25 or 30 years. A small number of companies also offer terms of 35 and 40 years. During this time your rates won’t change, so you can easily know how much to budget for payments for decades down the road. At the end of the term period you may have the option to renew, but it will be at a higher rate.
If you pass away while the policy is in effect, the life insurance company will make a payout to your beneficiaries, known as the death benefit.
You’ll select the death benefit when you buy the policy, such as $250,000. You can buy just a small death benefit, such as $25,000. But when you calculate your life insurance needs you’ll likely find you need a higher amount, especially if you have young children and/or a mortgage. Term life policies with coverage for many millions of dollars can be purchased.
Types of Term Life Insurance
Level term life insurance
Level term life insurance is what most people think of when talking about term life. Your rate is “level” for the length of the policy, such as 30 years. If you’re shopping for term life to cover income replacement or kids’ college costs, this is the type of term life to look at.
Annual renewable term life insurance
Annual renewable term life insurance is a policy you renew every year with the expectation that the rate will go up annually because you are a year older. This type of policy might be attractive to a young life insurance buyer who’s looking for low premiums and who may switch to a level term life insurance policy in a few years.
Decreasing term life insurance
With decreasing term life, your life insurance bill stays the same every month but the death benefit is constantly decreasing. This form of term life might be attractive to someone who only wants to cover a debt that’s decreasing, like a mortgage balance. It’s not good for long range expenses for a growing family.
Term Life Insurance Cost Examples
A good rule of thumb is to buy term life insurance as soon as possible when you have the need—such as when you get a mortgage or have a baby. The urgency here is in locking in the lowest rate possible. Every year you wait to buy, your life insurance quotes will go up simply because you are a year older. You also run the risk of developing a health condition that will cause higher quotes.
Term life insurance quotes are free and easy to get, so it doesn’t take much effort to find out what a policy will likely cost you. Here are some examples of average life insurance rates for healthy buyers of average height and weight.
Term life insurance rates per year for a 30-year-old male
Term life insurance rates per year for a 30-year-old female
Factors Affecting Term Life Insurance Rates
To calculate the rate for an applicant, life insurance companies typically look at several factors that contribute to how long you’re expected to live. This evaluation of “mortality” is the basis for a buyer’s life insurance quote.
What to Look for in a Term Life Insurance Policy
Many term life insurance buyers shop solely based on price. Cost is definitely an important element, but also know that there can be other differences that you’ll want to know about. Consider these factors along with price.
Does the policy have living benefits? A “living benefit” allows you to access money from your own death benefit under certain circumstances. Having a terminal illness, for example, will qualify you to pull money from your own death benefit if your life insurance policy has an “accelerated death benefit” feature.
For example, Transamerica’s Trendsetter LB policy is notable because policyholders can qualify to access money from their own death benefits if they develop a chronic, critical or terminal illness.
Related: Best term life insurance
Can I convert the term policy to permanent life insurance? A “term life conversion” feature allows you to convert part or all of your term policy into a permanent policy, such as universal life. You’ll be glad to have the feature if, for example, you develop serious health conditions down the road that would prevent you from buying an affordable policy that would last longer than your term life coverage.
Bob Bland, CEO of Life Quotes, a national online life insurance agency, expects interest in term life insurance conversion to grow. He observes that Boomers who are entering a life stage where kids are grown and the mortgage is paid off may look to convert their term policies to permanent life insurance. These permanent policies can be used to help pass wealth to the next generation.
How long is the policy guaranteed to be renewable? Ask what the maximum age is for renewing the policy. Once your level term period ends, you may decide you want to continue the same policy at a higher rate. Many term life policies, for example, are guaranteed to be renewable until 90 or 95.
Can I decrease the coverage amount? In the future you may find your life insurance need has decreased since you bought your policy. For example, maybe you built up substantial savings that make a large policy less necessary. Some term life policies allow you to decrease your coverage amount (and pay less).
Covid’s Impact on Life Insurance Buyers
The Covid pandemic reshaped the life insurance industry in many ways.
“Covid and the endless newscasts about death have absolutely played a role in providing a tailwind to the life insurance industry and we expect that trend to continue,” says Bland at Life Quotes. “Our core life insurance sales are up 21% this year and Covid concerns come up in almost every discussion.”
Byron Udell, CEO of AccuQuote, a national online life insurance agency, concurs that “overall demand is up, as one would expect whenever people become more aware of their own mortality. We saw this post 9-11 as well.”
Jennifer Fitzgerald, co-founder and CEO of Policygenius, a national online insurance agency, says she has also seen a notable growth trend in the number of younger life insurance buyers who are under age 44. “This reflects broader awareness of the need for life insurance brought on by the pandemic,” she says.
Term Life Insurance Trends to Watch for in 2022
If Covid has prompted you to consider buying life insurance, you’re in the market during a time of great pricing for consumers. Bland says that he’s seeing record-low premiums for term life insurance.
Fitzgerald at Policygenius observes that many life insurance companies regularly adjusted pricing for their policies in 2021. She expects to see continued price competition in 2022, especially as life insurers compete for bigger market share.
Covid has sped up the adoption of many shopping conveniences in general, such as online ordering and curbside pickup. Online ordering has its own momentum in the term life insurance business, too. There’s greater demand for no-exam life insurance, which allows the buyer to skip a requirement for an in-person paramedical exam.
“These policies became particularly convenient during the Covid-19 pandemic, when social distancing was a priority,” says Fitzgerald.
And there will be more and more no-exam choices for the life insurance buyer in 2022. Udell at AccuQuote says, “Certainly there has been a huge acceleration of companies rushing to the no-exam bandwagon.”
Bland at Life Quotes also says there’s growing popularity for instant decision, no-exam plans, which let you skip the medical exam and come away with a policy at the end of one phone call with an insurance agent or online session.
Tips for Buying Term Life Insurance in 2022
Whether you’re looking to lock in life insurance before the sparkly ball drops on 2021, or you plan to shop in 2022, here are tips for finding the best and cheapest term life insurance.
Shop around
In the middle of the pandemic some life insurers tightened restrictions on policy sales. “When Covid first swept the nation, we saw many insurance companies pull back on being willing to issue to folks over 60 and/or with any Covid-related co-morbidities,” observes Udell. Co-morbidities include health conditions that can make Covid more severe, such as existing respiratory issues or obesity.
“We are definitely seeing that loosen up, and that softening will likely continue as Covid becomes less prevalent and less deadly,” says Udell. “What I find that consumers don’t know is just how inexpensive term life insurance is, especially for young healthy individuals.”
It’s important to shop around, as life insurers have their own individual ways of calculating pricing based on your age and mix of health conditions.
Bland at Life Quotes advises that “having a record of annual checkups is also very important.”
Don’t wait too long
“Many people also don’t realize that life insurance gets more expensive as you get older—for every year you delay buying a life insurance policy, the cost of premiums increases by 4.5% to 9% on average,” says Fitzgerald.
“It’s a good idea to buy life insurance when you’re younger and healthier so you can lock in a more affordable rate, because insurers base your premiums on factors like your age and health,” she explains. Policygenius has a monthly price index that tracks rates for term life insurance.
Buy a sufficient coverage amount and length
“It’s common for people to secure less life insurance coverage than they need,” observes Fitzgerald. “For example, you may have group life insurance through your employer, but it’s probably not enough to adequately protect your loved ones if you were to pass away unexpectedly, and you also probably can’t take it with you if you change jobs.” Having your own life insurance will make any job change less financially risky.
Bland at Life Quotes also sees some buyers skimping on their term length. For example, he sees people “buying a 10-year policy when a 15- or 20-year would have been the far better choice.”
Checklist for the Term Life insurance Buyer
Here’s how to organize a term life insurance shopping effort.
✔ Decide how much coverage you need. There are many free online calculators to help you estimate your life insurance needs. In general, add up the expenses you want to cover (income replacement, college tuition, etc.) and subtract assets your family could use (such as existing life insurance). Don’t undercut your coverage estimate. When in doubt, err toward more coverage, advises Udell. A life insurance agent can also walk you through calculations for a coverage amount.
✔ Pick a term length. Buy a length that covers the number of years you want to provide coverage. For example, maybe you want coverage to last until you retire, or until your children will have graduated from college.
✔ If you want to skip the life insurance medical exam, ask your insurance agent about no-exam options. Younger and healthier buyers will have more no-exam options. But if you’re in your 50s or older, or in less than great health, you may not find affordable no-exam choices.
✔ Shop around. Gather several term life quotes. In addition to price, look at the policies’ features such as living benefits and the ability to convert to permanent life.
While the end of 2021 is marked by supply chain issues for many businesses, fortunately life insurers don’t run out of policies. And with historically low term life insurance rates and expanded options for no-exam policies, you can meet the unpredictable challenges of 2022 with another financial safety net.
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