Term Life Insurance: What’s the Difference Between the Cheapest and Most Expensive Options?

Term life insurance is an affordable way to secure life insurance coverage for a specific period, typically 10, 20, or 30 years. It’s ideal for covering temporary needs, like income replacement during key earning years or debt repayment. However, if you’ve shopped around, you might wonder what differentiates one term life policy from another.

How Term Life Insurance Is Priced

The cost of term life insurance is influenced by factors like age, gender, and health. For instance, a healthy 30-year-old male could obtain a $1,000,000 policy with a 10-year term for as low as $18 per month, with rates ranging up to about $40 per month.

Types of Term Life Insurance

There are several types of term policies, each with a guaranteed premium period:

• Annually Renewable Term (ART) – Premiums are guaranteed for one year.
• 10-Year Term – Premiums are guaranteed for 10 years.
• 15-Year Term – Premiums are guaranteed for 15 years.
• 20-Year Term – Premiums are guaranteed for 20 years.
• 30-Year Term – Premiums are guaranteed for 30 years.

With reputable providers, the primary difference among these options is the coverage duration. Premiums remain fixed for the chosen term but may increase sharply if you renew after the initial term.

What Makes a Term Policy More Expensive?

1. Return of Premium Option: Some policies, like those from Cincinnati Life, offer a refund of 100% of premiums if the insured outlives the policy term, making these policies more costly.
2. Conversion Options: Some term policies allow for a conversion to permanent life insurance, like universal or whole life, without additional medical underwriting. The level of conversion options can vary:
   • Conversion to a specific permanent policy offered by the insurer.
   • Conversion to any permanent policy within the first 5, 10, or 20 years of the term.

Policies with conversion options tend to be pricier, but they offer flexibility for those who may want lifetime coverage in the future.

Sample Term Life Insurance Rates for a Healthy 30-Year-Old Male (for a $1,000,000 Policy)

• 10-Year Term, No Conversion: $17/month
• 10-Year Term, Full Conversion for 10 Years: $21/month
• 15-Year Term, No Conversion: $21/month
• 20-Year Term, No Conversion: $29/month
• 20-Year Term, Full Conversion for 20 Years: $34/month
• 30-Year Term, No Conversion: $50/month
• 20-Year Term, 100% Return of Premium: $128/month
• 30-Year Term, 100% Return of Premium: $144/month

Comparing Term and Permanent Life Insurance

• Term Insurance: Offers a guaranteed death benefit and level premiums for the term duration. Term policies typically don’t pay out, as around 98% expire before the insured’s death.
• Universal Life Insurance: Provides a guaranteed lifetime death benefit (up to age 121).
• Whole Life Insurance: Guarantees a lifetime death benefit (up to age 121) and includes a cash value component that can grow over time.

Sample Monthly Premiums for Permanent Life Insurance

• Universal Life: $321/month
• Whole Life with Guaranteed Cash Value: $920/month

Why Is Permanent Life Insurance More Expensive?

The higher cost of permanent life insurance reflects the insurer’s risk, as these policies are guaranteed to pay out whenever the insured dies. Permanent policies also include benefits like cash value accumulation, which can offer flexibility for premium payments or access to cash during the insured’s lifetime.

Ultimately, term life insurance offers affordable coverage for a set period, while permanent life insurance provides lifelong security and additional financial flexibility at a higher cost.