What is Direct Term Life Insurance?

Term life insurance can offer a more cost-effective way to provide your loved ones with a large financial safety net if you pass away. Since this type of policy is often simpler than other life insurance types, you may have considered skipping the agent or broker to save time and get coverage directly from the insurer. This article will explain how direct term life insurance works and discuss its pros and cons to help you determine whether it's the right kind of life insurance policy for you.

How direct term life insurance works

Direct term life insurance is a policy you can buy directly through an insurer instead of going through a broker or agent.¹ It works like any term life insurance policy, offering coverage for a fixed 10 to 30-year period, depending on your choice. Premiums are more cost-effective, given the sizable death benefit. If you pass away during the policy term, your beneficiaries receive the death benefit. However, you may outlive your policy, meaning you’ll have to renew or get a new policy to continue coverage.

Pros and cons of direct term life insurance

Consider the benefits and drawbacks of direct term life insurance before getting a policy:¹

Pro: Reasonable premiums

Insurers offer more cost-effective premiums on direct term life insurance policies to account for the fixed policy period and lack of cash value growth component. However, the death benefit can be the same size as a permanent life insurance policy. Therefore, you can pay reasonable premiums for a substantial amount of coverage.

Pro: Convenience with direct purchasing

Direct term life insurance helps offer more convenience than policies obtained through a broker or agent. You can purchase it directly, allowing for a simpler and quicker process with less paperwork. Furthermore, pricing may be more transparent.

Pro: Flexibility

Term life insurance helps offer flexibility in policy structure, letting you choose coverage that lasts for the term of your choice. Plus, many insurers let you add riders that allow you to customize coverage based on your needs, such as an accidental death benefit rider.

Pro: Peace of mind

Direct term life insurance helps offer peace of mind by providing a quicker way to give loved ones financial security if you pass away. This can be especially helpful for primary or sole earners, single parents, and others whose households depend on the policyholder for most of their income.

Con: No cash value

Term life insurance lacks the cash value growth component that permanent life insurance policies, such as whole life insurance, have. These components grow with each permanent life insurance premium, earning tax-deferred interest. Permanent policyholders can eventually cash them out via loans, withdrawals, or surrendering the policy. Since direct term life insurance lacks cash value, you can’t use it as a source of wealth.

Con: May require more effort to find a policy

The primary benefit of working with an agent or broker is that you don’t have to shop around yourself, understand the nuances of different policy types, and compare quotes. Without an agent, you may have to put in more effort yourself. Therefore, direct term life insurance may only work if you’re more comfortable with the life insurance industry.