Explain Term Life Insurance

Key takeaways

• Term life insurance is often chosen to help cover temporary financial responsibilities like a mortgage or childcare.
• The length of your term and your health may impact the cost of coverage over time.
• Unlike whole life insurance, term life insurance typically does not build cash value.
• When a term policy ends, you may have options to renew, convert or purchase new coverage depending on the policy.

Term life insurance is a type of life insurance that provides coverage for a set period of time, often 10, 20 or 30 years. It’s known for being flexible and is often considered one of the more cost-effective life insurance options.

If you’ve been thinking about buying life insurance, term life could be the right choice for you. Here’s a closer look at how term life insurance works, what impacts the cost and what to consider before choosing a policy:

How does term life insurance work?

Once you choose the length of coverage that’s right for you and get approved for a policy, you’ll begin making payments every month until that coverage ends.  For example, if you buy a twenty-year policy and pass away ten years later, as long as you’ve made your payments, your family will receive a lump sum of money and be protected from financial hardship.

Who needs term life insurance?

Term life insurance is often chosen by people who want financial protection during important stages of life. It may be a good fit when the need for coverage has a natural end date rather than lasting indefinitely.

For example, parents may choose a term that lasts until their children are financially independent. Homeowners often align their coverage with their mortgage payoff timeline, while primary earners may use term life insurance to help replace income during their working years. Because coverage is designed for a set period, term life insurance is often used to help cover temporary financial responsibilities such as childcare costs, education expenses, or outstanding debt.

If your goals involve lifelong coverage, leaving an inheritance, or addressing long-term estate planning needs, a permanent life insurance policy may be worth considering. Understanding how long you expect to need coverage can help you choose the type of policy that aligns with your financial goals.

How does the length of coverage impact the cost?

The longer the term length, the higher the monthly payment. If you’re on a budget, a shorter term might be something to consider. That said, with a longer-term, you do have the ability to lock in your rate. That means if you suddenly become sick, your rate won’t increase. If you decide to choose a shorter-term policy and need to reapply, an illness could mean that your rate will increase significantly.

Term life vs. whole life insurance

If you’re exploring term life insurance, you may also come across whole life insurance while comparing coverage options. Whole life insurance is a type of permanent life insurance designed to provide lifelong coverage. Understanding the differences can help you decide which type of coverage may align with your financial goals and needs.

How much coverage do I really need?

Determining the correct amount of life insurance depends on your unique financial obligations, consider your long-term liabilities, such as outstanding mortgage balances, personal debts, future education costs and immediate income replacement needs for your dependents. For a more in-depth look at how much you and your family may need, you can calculate it here.

What happens when my term ends?

When a term life insurance policy reaches the end of its term, coverage typically expires unless additional action is taken. Depending on the policy, you may have options to renew your coverage, convert it to permanent life insurance, purchase a new policy or allow the policy to lapse. It’s important to review your options before your term ends, especially if your financial needs have changed over time. In many cases, premiums may be higher if you renew your coverage or apply for a new policy later in life.
 

Can I cash out a term life policy?

Term life insurance policies typically do not build cash value, which means they generally cannot be cashed out like some permanent life insurance policies. Term life insurance is designed to provide coverage for a specific period of time rather than accumulate savings over time. Reviewing your policy details can help you better understand the features and options available with your coverage.

Get a quote for term life insurance from John Hancock

Whether you're looking to help protect your family, cover a mortgage or replace income during your working years, term life insurance can provide coverage designed to fit your needs and timeline.

Ready to take the next step? Explore John Hancock's term life insurance options or connect with a life insurance specialist through the online contact form to discuss your coverage needs and learn more about your options

This material is not an endorsement of any particular product, service or organization; nor is it intended to provide advice. It is intended to promote awareness and is for educational purposes only.

Insurance products are issued by: John Hancock Life Insurance Company (U.S.A.), Boston, MA 02116 (not licensed in New York) and John Hancock Life Insurance Company of New York, Valhalla, NY 10595.

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