What is the cheapest term life insurance you can buy?

Two different term life insurance products can be the cheapest to buy. They are either group term life insurance or 10-year term life insurance. 

10-year term life insurance, where you go through the full underwriting process the insurance company requires, will likely be the cheapest life insurance coverage if you are a healthy non-tobacco user. Simplified issue 10-year term life insurance will be a little more expensive but is still an inexpensive option.

Group-term insurance may be the cheapest if you have some health issues and/or you use tobacco.

Since life insurance agents are paid commissions based on premiums, many want to sell you longer-term life insurance policies such as 20-year or even 30-year term life products because the premiums are higher.

You can see how the premiums increase as you extend the term coverage in the graphic below. These prices are based on a 35-year-old male in perfect health for $1,000,000 in term life insurance coverage.

They indeed guarantee premiums for a longer period, but many 10-year term policies can be renewed past the guaranteed premium period up to age 95! These policies become "one-year annual renewable term policies," so each year you keep it past the guaranteed premium period, you will experience a premium increase. Before you buy a term policy, ask an agent about the renewal options of a policy past the guaranteed premium period.

The option to renew a term policy is usually a last resort for a policy owner if they become uninsurable, which could happen. In actuality, the odds of someone becoming uninsurable during the life of a term policy may be higher than someone dying! Crazy, right?!

Let's look deeper at group and 10-year term life insurance policies. Too, anytime you want, you can head over to decisiontree.financial and check out our free life insurance quote tool to compare term life insurance rates without having to provide your contact information. Pretty cool, right.

Group term life vs. 10-year term life insurance?

Group term life

Group-term life insurance is coverage offered by an organization with a financial interest in its members. This includes employer-employee relationships, credit unions, and professional associations with their members. When an insured buys coverage through a group life insurance plan, they aren't buying an actual life insurance policy. Instead, they receive a certificate of coverage from the master insurance policy owned by the plan sponsoring organization. So if you have group life insurance coverage from your job, your employer owns the master life insurance policy, and you have a certificate off of it granting you death benefit protection.

Most group-term life insurance plans won't require the plan participant to undergo the underwriting process to acquire coverage. Group life insurance plans have guaranteed issue provisions up to a certain amount of coverage. If a participant wants any more death benefit coverage above the guaranteed issue amount, they will be required to go through underwriting to get it. Even then, there may be a limit to how much death benefit protection one can buy through a group plan.

Group life insurance is priced as one-year term life insurance. This means each year you continue coverage; your rate will increase as you get older. It also means you will be paying the lowest amount possible for coverage since the premiums you are paying are going straight for coverage right now and not to offset the cost of insurance in later years of life. Even 10-year term life insurance does for the first 5-years of the policy.

The problem with group life insurance is that this coverage is not portable, meaning if you leave the group, you won't be able to continue your term life coverage. The provisions of the master policy state that a plan participant must be offered continual coverage if they leave the group; however, that coverage is usually offered in the form of a permanent life policy which, as I stated earlier, can be 40x more expensive that the group term rates.

The premiums needed to buy group term life insurance depend on the health of the entire group and not just one individual. This can help those with some health issues get coverage, while it may cause those in excellent health to pay more per thousand dollars of coverage than they can buy from a life insurance company directly.

10-year term life insurance

10-year term life insurance is a policy purchased by an individual directly from an insurance company. When someone buys a 10-year term life insurance policy, they own that policy, and coverage will continue for the length of the term as long as the required premiums are paid.

The premiums are based on the health of the insured, their age, sex, and tobacco usage (if any). Some life insurance companies even look at the insured's family history of cancer or heart problems as they consider the risk they would accept when they issue a new life insurance policy.

Since 10-year term life is owned by the individual directly and not by a third party like a group policy is, a 10-year term is 100% portable. Therefore, if a person changes jobs, moves, or experiences other life events, their coverage will continue as long as the required premiums are paid.

One thing to understand with any individual life insurance policy life a 10-year term is there is a 2-year period where the insurance company can challenge a claim. For example, if an insured commits suicide 18 months after taking out a new term policy, the insurance company will deny the claim. After 2-years, all individually owned life insurance is 'non-contestable," meaning the life insurance company will pay claims no matter the circumstances unless there was fraud in obtaining the policy. This includes impersonation or intent to kill an insured to receive the benefit.

Commissions for 10-year term life insurance are lower than those of policies with long-term periods. This means more of your money is going towards your protection and not to the profits of the insurance company or the agent selling you the policy. I am not saying the company shouldn't make money. The last thing you want is to buy a million-dollar-plus life insurance policy from a broke company! No, you want to know they have enough money to pay claims. You also don't want your life insurance agent working for free. They do deserve to make enough to make a living and help you with your purchase though. By buying a 10-year term, you are compensating them the bare minimum, which is OK. A good agent isn't in it for just the money. They are in it to be sure their clients have the coverage they need without going broke getting it.

If you want, head to Decision Tree Financial and see how much term life insurance will cost you. You can click here and run as many term life quotes as you would like. When you are ready to buy a policy, we are here to help you too.