According to the National Endowment for Financial Education, only 24% of college graduates have basic financial literacy. Similarly, Shawn Carter of CNBC says that one-third of Americans are stressed out over their current financial state. Education and knowing what is available to you is key to reducing the stress that comes with finances, and over the course of the next couple of months, Financial Security will dive into the details so that everyone can get a better understanding of finances.

Life can be scary; however, it is also the best thing that you have. So, how do you protect your life and your family when the unexpected happens? In the financial world, this is done through life insurance. There are varying degrees of life insurance that are available. Today, we will start our adventure with Term Life Insurance.

What is Term Life Insurance?

Term Life Insurance, according to Northwestern Mutual, is insurance that provides financial protection for a set period of time. This insurance provides a temporary death benefit for a temporary amount of time. The idea behind this is to allow for a cheaper way for people to protect themselves in case of an unforeseen death. The most common types of Term Life insurance fall under T10, which is insurance for 10 years, T20 for 20 years, or T80 which goes until you turn 80 years old.

Who gets this type of insurance?

As a result of the lower monthly payments and the minimal time on the life insurance policy, this type of policy is popular for younger generations. These generations include people just graduating from college or people out of college that do not have a family, according to However, this can also be an affordable option for anyone.

Are there any variations of Term Life Insurance, or is it a one-size-fits-all?

Term Life Insurance is definitely not a one-size-fits-all type of insurance. Some of the most common variations of the insurance are:

  1. Level-Premium Term Life. This type is the most common Term Life Insurance found among younger generations. This type of Term Life Insurance pays the same premium each year, and your family will receive the guaranteed death benefit when you pass away.
  2. Annual Renewable Term Life is exactly what it sounds like. At the end of each year, you can renew the policy. The only disadvantage of this type of insurance is that with each renewal your premium will increase. This type of Term is ideal for people who only need life insurance for a short period of time.
  3. Decreasing Term Life has premiums that stay the same but the death benefit will decrease over the life of the policy. This is ideal for someone that has an expense they would like to protect their family from; something such as a mortgage. 
  4. The Return of Premium Term Life insurance provides the policyholder with a refund of the premiums they pay if they do not die during the policy term. People who do not like the idea of buying something and putting money towards a policy they won’t use will benefit from Return of Premium.

Benefits of Term Life Insurance

Term Life Insurance is usually the cheaper option for life insurance; however, there is one more common difference. This difference is increasing premium over time or a level premium. Increasing premium usually starts low and increases as the end of the policy nears, while the level premium stays consistent for the length of the policy. Finally, Term Life Insurance provides the ability to convert policy into a whole life policy.

How is it paid out?

In the event of your death, the policy would be paid out to your beneficiary (the person you designated on the contract) as income that is tax-free, giving that person the ability to receive the whole amount stated on the contract.

Term Life Insurance is a great option for people just starting out in their careers. It can be good for people who want to cover the short term. Term Life is the cheapest coverage available, just one option in the long line of life insurances available to you.