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Who should buy term life insurance?

Term life insurance often makes sense for younger adults who are earlier in their careers, on tighter budgets and starting families.  Getty Images

Life insurance enables you to leave money behind for loved ones when you pass away. It can be used to pass on a tax-free inheritance, replace your income, cover your end-of-life expenses, and more.

About half of Americans report carrying life insurance, according to the 2022 Insurance Barometer Study conducted by LIMRA and Life Happens. There are many different types of life insurance on the market but, when is a term life policy the best fit? Read on to learn about five common scenarios where term life insurance may make sense.

If you're in the market for life insurance then start by getting a free price quote so you know exactly what to expect.

Before deciding if term life insurance is right for you, it helps to understand exactly what this type of policy is. 

What is term life insurance?

Term life is a type of life insurance policy that offers a set amount of coverage for a certain period — such as 10, 20, or 30 years. When your policy expires, you typically have to go through the underwriting process again if you want to renew your coverage. In contrast, whole life insurance can cover you for the rest of your life at a fixed rate. Whole life insurance policies also come with an attractive cash reserve that can potentially be accessed while alive. Because of this, and because of the duration of whole life insurance policies, they tend to be more expensive than term ones.

Who can benefit from term life insurance?

Term coverage can make sense in a variety of situations; particularly, when people are on a budget and need cost-friendly coverage. Here are five groups that would likely benefit from taking out a term life policy, according to industry experts. 

Younger adults 

Term life insurance often makes sense for younger adults who are earlier in their careers, on tighter budgets and starting families. 

"It's typically best for … younger adults who want to make sure their family is covered in the event of an untimely passing," said Adam M. Hyers, licensed insurance agent and founder of Hyers and Associates. 

He adds, "The idea is that the need for insurance will be much less once the term has expired. Children are older, out of school, and on their own. Homes are paid for and savings/investments have increased."

If you think you could benefit from term life insurance then start by getting a free price estimate now.

Spouses with significant shared debt

If you and your spouse have taken on a sizeable amount of debt, term life insurance can offer affordable protection while you have large outstanding balances. "It's often good practice to make sure any debt (car loans, credit card debt, private student loans, a mortgage) can be paid off if necessary to avoid a surviving spouse being financially strapped," explains Danny Cieniewicz, CFP at Hyperion Financial. 

Older individuals who want to leave an inheritance 

Term insurance may also be helpful if you're getting older and don't have an inheritance to leave behind to your chosen beneficiaries. "I've been seeing an increasing number of older individuals who didn't plan for retirement buy term life due to the low costs. They hope they'll be able to leave behind the term insurance benefit to their loved ones," said Natasha Mcpherson, CLTC, a financial advisor at Hall Wealth Management. 

Business owners

Business owners may also encounter the need for term life insurance. "Banks often require key man life insurance for organizations applying for loans. This protects the bank, ensuring your business can pay back the loan even if there is a death of a valuable employee," says Chuck Politi, owner of Politi Insurance Agency. 

Mike Raines, the owner of Raines Insurance Group, adds, "Business owners may also need large amounts of life insurance to ensure that the business can continue if something happens to one of the partners. Term life insurance fits this bill very well by providing an immediate death benefit exactly at the time it's needed."

People who want to layer insurance policies

Lastly, term insurance can act as a supplemental policy to help you save on your overall coverage costs. Daniel Adams, MBA, CFP, president at CEG Life Insurance Services, explains, "Term life insurance can be beneficial for individuals who purchase a smaller amount of permanent life insurance for lifetime protection, but need to supplement that amount for a limited time while their permanent life insurance policy's benefit grows."

Is term life insurance right for you?

Term insurance can be a good solution in a variety of circumstances, like these five, but there are pros and cons. While the cost is lower, the coverage is not permanent and policies don't come with a cash value component. If you have any questions or concerns, be sure to consult with an insurance agent or a trusted financial planner. You can also get a free price quote now or use the table below to compare some top life insurance providers.

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