What is Direct Term Life Insurance?

min read
Updated: 02 January 2024
Written by
Bob Phillips
On this page Open

Welcome, and thank you for seeking to understand more about direct term life insurance. With the right information at your disposal, you’re making a significant stride towards securing your family’s financial future.

With over 15 years of experience as a life insurance professional, I’ve seen firsthand the immense value of term life insurance. It’s not merely a policy but a substantial financial tool that provides peace of mind and ensures that your loved ones will have financial support when they need it most. By choosing direct term, you’re investing in the financial stability of those closest to you.

Key Takeaways

  • Direct term life insurance is purchased through the insurance company directly, not an agent or broker.

  • Direct term is substantially less expensive than permanent insurance, like whole or universal life

  • Most direct term policies can be converted to permanent insurance at a later date if you wish

What is direct term life insurance?

A Direct term life policy is an excellent choice if you’re seeking an efficient, straightforward way to secure your family’s financial future. This type of insurance policy offers coverage for a specific period—known as the “term.” Should you, the policyholder, pass away during this term, typically 10, 15, 20 or 30 years, your designated beneficiaries will receive a death benefit.

The standout feature of direct term? It’s all in the name. You can purchase it directly from the insurance company, bypassing any need for brokers or agents. This direct channel empowers you to make informed decisions at your own pace, placing you firmly in control.

Direct term policies are typically more affordable than whole life or universal life insurance. This affordability stems from the policy’s simplicity: it’s purely insurance without cash value accumulation or investment components. You pay for the peace of mind that your beneficiaries will be financially protected in your absence, and nothing more.

How does direct term work?

The process of buying direct term life cover is straightforward. You bypass brokers and agents, purchasing the policy directly from the insurer. This approach offers the advantage of comparing various policies, their costs, and customer ratings at your own pace.

However, it’s important to understand that the cost of premiums depends on multiple factors such as your age, health status, lifestyle habits, and the term length.

For example, a non-smoker in their 20s will likely pay lower premiums than a smoker in their 40s. The cost may also increase over time if you decide to renew the policy after the initial term. Therefore, thorough research and understanding are key to choosing the right policy for your needs.

Moreover, the flexibility of this type of life insurance is a significant draw for many policyholders. You can choose a term that aligns with your financial obligations, such as mortgage repayment duration or your children’s college years.

If your needs change, many policies offer the option to convert to a whole life policy. Additionally, buying directly from the insurer allows you to compare policies, costs, and customer ratings at your convenience.

Benefits Of Direct Term Life Cover

Affordability

Direct term life insurance is usually more affordable than other types of life insurance. This is because it’s a straightforward insurance product without any investment or cash value component. You’re simply paying for the assurance that your loved ones will receive a death benefit if you pass away during the policy term.

Flexibility

It offers flexibility in terms of coverage duration. You can choose a term that aligns with your financial obligations, such as the duration of your mortgage or your children’s education years. Some policies even provide the option to convert to a whole life policy if your needs change.

Direct Purchase

Purchasing direct term insurance allows you to bypass brokers and agents. This can make the process more efficient, and often more cost-effective. You also have the power to compare different policies, costs, and customer ratings at your own convenience.

Drawbacks Of Direct Term Life Insurance

No Cash Value Accumulation

Unlike permanent life insurance policies, direct term life insurance does not accumulate cash value over time. This means that you cannot borrow against your policy or receive any payout if you outlive the term of the policy.

Premium Increases Upon Renewal

While initial premiums for term life insurance are typically lower than those for permanent life insurance, they can increase significantly if you decide to renew the policy after the initial term. This is especially true as you age or if your health status changes.

Requires Active Decision Making

With the power to purchase directly also comes the responsibility of making informed decisions. Without an agent or broker to guide you, it’s crucial to thoroughly research and understand the terms, conditions, and costs associated with each policy. This can be time-consuming and may feel overwhelming for some individuals.

3 Best Direct Term Life Insurance Companies


Best Overall

Overall Rating
5

Key Statistics

9/10 Affordability
10/10 Customer Reviews
10/10 Claims
9/10 Coverage Level

Why We Like Them

I can find very little not to like about Haven Life.

Haven Life is an innovator in the digital life insurance space and is renowned for its seamless online experience. The company offers a fully digital application process, which eliminates the need for lengthy paperwork and in-person meetings.

Its term life insurance policies are straightforward and affordable, making it a top choice if you’re seeking convenience and cost-effectiveness.

Haven Life is backed and wholly owned by Massachusetts Mutual Life Insurance Company, commonly known as MassMutual. MassMutual is one of the country’s oldest and most reliable insurers, providing a strong financial foundation for Haven Life’s customers.

MassMutual’s backing allows Haven Life to leverage its parent company’s stability and experience while offering a modern, online-focused insurance purchasing experience.

Their partnership indicates a blend of traditional expertise with innovative, customer-centric approaches to life insurance.

Benefits & Drawbacks

Benefits
  • Competitive pricing
  • Superior financial rating of A++ from AM Best
  • Simple and fast application process
Drawbacks
  • Limited policy options
  • Not the lowest rates available
  • Age and health restrictions for instant coverage

Best for Policy Flexibility

Overall Rating
4.8

Key Statistics

9/10 Affordability
8/10 Customer Reviews
8/10 Claims
10/10 Coverage Level

Why We Like Them

Prudential offers a wide range of customizable term and universal life insurance options. With their Direct Term Life Insurance, Prudential delivers flexibility and superior value to clients.

This flexibility is evident in multiple aspects of their policies, from premium payments to coverage adjustments.

One aspect that sets Prudential’s direct term life insurance apart is its flexible premium payment structure. This feature allows policyholders to adjust their premium payments to suit their financial situation at any given time.

Such flexibility can be particularly beneficial during times of financial uncertainty or change.

Living benefits are another area where Prudential shows its commitment to flexibility. These benefits can provide financial support if you become seriously ill.

The company’s generous living benefits set it apart from many competitors, offering more comprehensive protection during challenging times.

Benefits & Drawbacks

Benefits
  • Generous conversion options
  • Living benefits for seriously ill policyholders
  • Large coverage range – up to $10 million
Drawbacks
  • Potential for premium increases
  • Limited availability for certain health conditions
  • Customer service concerns – mixed reviews

Best for Affordability

Overall Rating
4.9

Key Statistics

10/10 Affordability
9/10 Customer Reviews
9/10 Claims
7.8/10 Coverage Level

Why We Like Them

Banner Life’s Direct Term Life Insurance is renowned for its affordable and flexible policies. The company offers term lengths that range from 10 to 40 years, catering to a variety of life stages and needs.

This level term insurance means your premium and payout remain constant throughout the policy term.

Coverage starts at $100,000, and premium rates can be as low as $8 per month, depending on factors like age and health status. This affordability, combined with an adjustable death benefit, makes Banner Life’s offerings particularly appealing.

While Banner Life provides cost-effective coverage and flexibility, potential policyholders should also consider certain drawbacks. For example, Banner Life does not offer whole life insurance, which may be a limitation for those seeking to convert their term policies to this type of permanent coverage.

Additionally, certain health conditions might limit availability or increase the cost of coverage, which is common to many insurers.

Benefits & Drawbacks

Benefits
  • Affordable policies
  • Quick and easy claims processing
  • High customer ratings
Drawbacks
  • Potential for premium increases
  • Limited online resources
  • No mobile app

How much does direct term life insurance cost?

The cost can vary significantly based on several factors, including your age, gender, overall health, the length of the policy, and the coverage amount. The average cost of life insurance is typically between $40 and $55 per month.

However, the cost of direct term life cover is often lower, with average costs for a woman in her 30s being around $22 per month.

Age $250,000

Coverage

$500,000

Coverage

$1,000,000

Coverage

25 $12 $25 $50
35 $17 $20 $39
45 $23 $30 $60
55 $29 $58 $117

The cost of Direct Term Life Insurance can vary significantly based on several factors, including the insurance provider, your age, gender, overall health, the length of the policy, and the coverage amount.

To provide a clearer picture, I’ve compiled the average monthly premiums for a 20-year term life insurance policy from five different insurance companies.

Age Banner Life

($250,000 Coverage)

Bestow

($250,000 Coverage)

Haven Life

($250,000 Coverage)

Protective

($250,000 Coverage)

25 $13 $14 $15 $17
35 $14 $14 $15 $17
45 $20 $21 $23 $26
55 $37 $40 $42 $47

 

Direct term life insurance vs. whole life insurance

When it comes to securing your family’s financial future, choosing the right life insurance policy is crucial. Two of the most common types of life insurance are direct term life and whole life insurance.

Both offer protection, but they differ significantly in cost, coverage duration, and additional benefits. Understanding these differences can help you make an informed decision that best suits your needs and financial goals.

Direct Term Life Insurance Whole Life Insurance
Duration: Term life insurance covers a specific period, typically 10 to 30 years. Duration: Whole life insurance provides lifelong coverage as long as premiums are paid.
Cost: Term life insurance is generally more affordable and offers higher coverage for lower premiums. Cost: Whole life insurance tends to be more expensive due to its cash value component and lifetime coverage.
Cash Value: Term life insurance does not have a cash value component, meaning it doesn’t accumulate value over time. Cash Value: Whole life insurance includes a cash value component that grows over time, providing a form of savings.
Flexibility: Term life insurance is flexible; you can choose the term length that suits your needs. Flexibility: Whole life insurance is less flexible as it provides coverage for life, which means higher premiums.
Purpose: Term life insurance is primarily designed to replace lost income during working years. Purpose: Whole life insurance is often used for estate planning or accruing a cash value for borrowing against.

FAQs

Can you cash out direct term life insurance?

Since direct term life insurance doesn’t accumulate cash value, there is no “cash out” provision with this type of policy.

What is direct term and how does it work?

Direct term provides coverage for a specific period, often between 10 to 30 years, and pays out a death benefit to your beneficiaries if you pass away during the term. You buy it directly from the insurance company, not an agent or broker.

What happens when direct term life expires?

When the term expires, you can choose to renew the term policy, or many companies allow you to convert the policy to permanent life insurance, such as whole or universal life insurance, at a higher premium.

Go back to top