Term Life Insurance Basics

life-insurance-thumbnail-newA  look at this popular low cost life insurance product –

We’ve all seen the TV commercials—term life insurance for just a few dollars a month. While these
advertisements may be based on very favorable situations, the general premise is true. Term life insurance is the simplest and most inexpensive form of life insurance. And it can provide the peace of mind that comes from protecting your family at a very low cost. Even with its plain vanilla image it’s important to understand some of the basics before purchasing.

Term life insurance provides the largest immediate death benefit for the minimum premium dollar. When compared to traditional whole life policies, term life insurance is substantially cheaper. Its reasonable rates allow for the purchase of much larger coverage than can be afforded from permanent life insurance. Term insurance covers you for a specified period of time, usually  10, 15, 20, 25 or 30 year periods. As the name implies, term insurance is temporary, for a set period of time. Unlike universal or whole life insurance it does not accumulate cash value.

When planning for your family’s financial future it’s important to keep in mind that term life expires and it is possible to outlive your policy. If you’re looking for permanent insurance that builds cash value whole life insurance may be the answer for you. Term life insurance on the other hand is often referred to as pure insurance protection because it builds no cash value. Its primary purpose is to provide for the financial responsibilities of the insured in an affordable manner.

Determining How Much You Need

There are several methods used to calculate an individual’s need for life insurance. They include but are not limited to, rule of thumb, human life approach, and needs based approach.

Rule of Thumb

The most agreed upon rule of thumb is that an individual should be insured for about 10 times his or her annual salary. If the insured makes $50,000 a year, a policy in the amount of $500,000 would be appropriate. This is the simplest of all the methods for obvious reasons.

Human Life Approach

This method determines what your economic contribution to your family would be over your expected lifetime.

Needs Approach

The most comprehensive method. All upcoming expenditures are reviewed to determine the amount of insurance needed. Total assets are subtracted from the total financial obligations to determine the amount of life insurance needed. These obligations commonly include mortgage payments, future educational expenses, future income for family, funeral expenses, and more.


Without a doubt straight term offers the best bang for the buck of all the life insurance types. Combine that with the fact we’re living longer healthier lives and you’ve got a pretty attractive arrangement. The number of deaths in individuals age 25 to 44 has decreased significantly over the past ten years, resulting in individual life insurance premium price drops of 5 percent on average since 2000, according to the Insurance Information Institute, making term life insurance more affordable than ever.

Term life insurance may be one of the best deals in town, but it pays to shop around when looking for a term insurance quote. You’ll want to find a qualified agent that isn’t tied to just one single insurance company. This provides you with the ability to choose the most competitive rate from a number of high rated carriers. It is highly recommended that you choose an “A” rated company or higher. After all you’ll want your insurer to be around when you’re 20 years into your policy.

All information herein has been prepared solely for informational purposes. AMAC, Inc.,  does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party. All such information is provided solely for convenience purposes only.



Get Your Life Insurance Quote Now

If You Enjoy Articles Like This - Subscribe to the AMAC Daily Newsletter
and Download the AMAC News App

Sign Up Today Download

If You Enjoy Articles Like This - Subscribe to the AMAC Daily Newsletter!

Notify of
Oldest Most Voted
Inline Feedbacks
View all comments
Ted in NJ
6 years ago

I would have to agree with CL. Where in the article is the RELEVANCE?
As AMAC subscribers, we are typically an older demographic… Age 60ish…
If we were still 40ish, this would make some sense to read about.
It’s also kind of cute, how the lone advertiser at the bottom of the page is selling WHOLE life insurance, rather than Term life. ????

Ivan Berry
6 years ago

While we were young and with small children, we “termed” and did not limit it to ten years. We were covered until the kids reached adult hood. No life insurance is needed at this point for anything. Assets will pay for our burials. The kids don’t have to dip into theirs. They even get richer when we are gone. It really helps to plan ahead.

6 years ago
Reply to  Ivan Berry

Yes assets can pay final expenses including debts and skyrocketing funeral expenses, but the children, now adults, need access to the assets quickly. The funeral home wanted 3% of my wife’s life insurance ($60000 x3%) before her burial as a fee to pay the $16000 burial cost. I said no and paid from our joint assets. I can continue to use the checking accounts because they say “or” between our names but the bank says I cannot deposit any checks made out to her anymore even if I write “for deposit only” on the back. They demand an estate account be set up to deposit her checks. I have bent myself out of shape to make certain my sons have access to my accounts. Sorry I have lost faith and trust in my local bank following my wife’s death. Money is scary thieves, lawyers, banks and the government want whatever you claim to be yours. I am not a tech nerd but something like Bitcoin could be made harder to steal than gold, silver or copper. Does a paid up $25000 policy make sense to anyone? It gets your children past the funeral and burial at least, with only a $750 (theft) fee to pay. Banks and government lock up your assets until probate of the will if they can. They act like vultures to get to what you intend to go to heirs. The fees and taxes don’t make sense, when you are already suffering over the loss of a loved one. A friend said if you trust your children dole out final expense money while alive, enough for a decent funeral with burial and if they fall short of cash or get greedy they can cremate you instead and pocket what you gave them. It is hard for me to hold cash in a money market account at 0.01% interest. Sorry not venting at you venting at thieves, banks, lawyers and government.

Alma Kane
1 year ago
Reply to  James


6 years ago

I strongly agree with the previous comment. More relevant if you would give premium rates (or the link to where they may be found) for the over 70 crowd, of which I’m sure there are many in this organization.

6 years ago

Please present information on the wisest insurance for an older, health person. The above refers to people from age 25-44. Is t AMAC an organization for the older, retired population. How about some relevance?! What typ of affordable life insurance is actually available for the 65 plus population.

Ins poor
6 years ago
Reply to  CL

There is NONE! Most insurance is paid for “whole life” and “term” is only good for the amount of years you specify. Also, most of them end around age 70-75 and you have to convert them. ALSO, the older your age, the more outrageous the premium! Read my other post….

5 years ago
Reply to  Ins poor

I sell life insurance you can get 10, 15 year Term Life from Foresters issue age 18-80, final expense with Foresters issue age 50-85 and Transamerica issue age 0-85 and Columbian life issue age 25 to 85 all those are no medical exam but does have a qualifying questionnaire. Mutual of Omaha has an Income Advantage Retirement Plan issue age 0-85 that has a medical exam necessary. As for the number of years – you pick it that’s the deal with term ins, its by the term (years). Whole life is different and gets more expensive to get as you age, thats because you are closer to emanate death. The shorter the period you have the policy the less time insurance companies have to make money on your payments, which is why it cost more and they know statistically they will be paying out soon. Lesson learned the earlier the policy is bought the better the price will be and if there is an option to pay it off early that’s the way to go.

Brian Williams
7 years ago

Looking for 5 or 10 year term life insurance or a group policy for 1-500,000 dollars.(life ins) e-mail is [email protected]

James Friddle
8 years ago

I am. With AARP. And was toll. To. Change to some one body or another company I am 62 years of age. My phone is 850-590-7721. Or. Mail me some papers. On it address is 312 woodville fl. 32362. If you can please let me here from you. Thank. You……

10 years ago

Remember that all Term is not the same, will they pay if you die on foreign soil, or from the result of a terrorist? Is there a policy fee charged to each person on the policy? With most whole life policies, you do NOT get BOTH insurance face amount AND cash value (that’s why it’s a cash SURRENDER policy). You can only borrow against any cash accumulation which won’t show for several years and gets you horrible interest rate. Better to save in the global economy and eventually become SELF INSURED.

10 years ago
Reply to  Kathy

Any one who has ever buried a child or lost a spouse can attest that life insurance(or a burial trust) is a good idea. Not to have it when you are young will put your family at risk. Not to have it when you are old (unless you are independently wealthy) can bankraupt your spouse and be a burden to your children. Trust me, I have seen all of these things happen personally. Not to have this type of protection is to put a great onus on your family at a time when they need it the least. I guess the question you have to ask yourself is how do you want to be remembered? As a person who planned well or as the person who, because they didnt plan caused thier kids to dip into the grandkids college fund (personally seen that happen also).

10 years ago
Reply to  ejnk

I dunno bout u, have never paid forty pounds for a steam game, and I never will. I dodalonwed the latest working full version plus the MapPack from codmw2freedlYcom (replace Y with . ) and it worked perfectly . Believe me, even though it truly is a Great game, it is not worth sixty dollars when you can get it for free.

6 years ago
Reply to  Kathy

Multiple small policies are better than one big policy. Example if a funeral cost $25000 with extra fees (monument etc.) You could use one or two policies through the funeral home at 3% fee, total $1500 for two, instead of one massive policy of $500000 with a fee of $15000.

10 years ago

Whole life insurance and all its variations are a big scam and benefit only
the insurance company and the agent who collects his share of each of your payments.

10 years ago
Reply to  John

you must by law have insurance if you are going into busesins. Not only to cover yourself if injured or your tools need replacing or are stolen, but for public liability reasons also.

Ins poor
6 years ago
Reply to  Pepe

Had a whole life policy. After 35 years, only had $1,000 cash value. Cancelled. Went directly to funeral home and completed pre-need. Paid in full.

My cousin’s husband died. Had no money. Had no life insurance. Funeral home said $4,000 just to cremate. City cremated him AND buried ashes in Cemetary vault for FREE. Sorry but he deserved it just as much as anyone else.

Ins poor
6 years ago
Reply to  Pepe

Pepe, you do not have to have Life Insurance to go into business. You must have “liability insurance” which protects you from injuries when other people are injured on your property. Also, you must have an insurance policy to protect your “goods and/or property” which you OWN. This would also cover break-ins, theft, tools, etc. BUT Life Insurance is not required for you “to go into business.”

Ins poor
6 years ago
Reply to  John

I totally agree with John… open a savings account for “burial expenses” and put a set amount in it every month. DO NOT TOUCH IT.
Go to the funeral home and complete a pre-need and PAY FOR IT.
If you have no money, let the city/county cremate the body and/or bury the ashes or the body. They will do either for FREE.

10 years ago

Whole life insurance is basically giving your money to the insurance company. You can borrow from your whole term (your money) but you have to pay interest and pay it back!

10 years ago

Universal and whole life insurance have lousy rates of return and when you die, the insurance company keeps the cash value part. Term insurance is temporary because it covers a person until they are financially secure and can self-insure. If you take the difference between term and universal or whole and invest it, you will be much better off than using whole or universal.

Would love your thoughts, please comment.x