Term Life Insurance: What It Is and How It Works
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Imagine a world without yourself in it. Would your family need help paying the bills? Term life insurance can help you bridge that gap at a relatively low cost. If you die while the policy is in force, you’ll leave behind a lump sum of cash for whomever you choose.
Because term life insurance doesn’t last forever and has no cash value, it’s typically much cheaper than whole life insurance.
» MORE: Term life insurance definition
What is term life insurance?
Term life insurance offers temporary coverage for a specific period of time, such as 10, 20 or 30 years. As long as you keep up with your premium payments, your insurer will pay a sum of money to your life insurance beneficiaries if you die during the term.
Unlike whole life and other types of permanent life insurance that may last your entire life, term life insurance coverage typically expires when the term ends. This means that if you outlive your policy, your beneficiaries won't receive any money. If you still need life insurance, you may be able to renew your policy, convert it to permanent coverage at a higher premium or buy another policy.
Term life doesn’t build cash value that you can borrow against, like permanent life insurance does. This is one reason term life is cheaper than whole life. Term life purely provides insurance, and with whole life, you're paying for longer coverage and the ability to grow the policy's cash value.
Do you need term life insurance?
Term life insurance is sufficient for most people who are in the market for coverage. Consider term life insurance if:
People — like a spouse or child — depend on you financially.
Your death would be a financial burden to others.
You have debt that will be paid off after a number of years, such as a mortgage.
You’re a stay-at-home parent and your family would have to pay someone to handle household tasks and other services if you die.
» MORE: Who needs life insurance?
How long does term life insurance last?
Term life insurance policies often last for 10, 20 or 30 years, but some insurers offer policies in one- and five-year increments. If you’re a breadwinner in your family, aim to choose a term length that matches the years your family will rely on your income.
Ideally, by the time your coverage ends, you’ll no longer need life insurance. Your children will be grown, your mortgage will be paid off, and you’ll have enough savings to be financially secure.
If you expect your needs will change over time, you can buy more than one life insurance policy, giving you extra coverage during the stages of life when you need it most. This strategy is known as “laddering,” and it’s useful if you have financial obligations set to end at different times. For example, you could take out a 30-year policy to match your 30-year mortgage and a 20-year policy to cover your children until early adulthood, when they’re likely to start earning their own money.
Deciding between term and permanent life insurance
Find out whether term life insurance is the best fit for you by using our tool below.
Can I switch to permanent life insurance?
Many policies allow you to convert your term life policy to permanent insurance. Your premiums will go up, but you can stay insured without having to prove you’re still in good health. Some policies allow conversion at any time, while others permit it only in the first few years of coverage or before you reach a certain age, like 75.
How much does term life insurance cost?
Term policies are often the most affordable life insurance. The cost of a term life insurance policy depends on several factors, including:
Age. Younger people qualify for lower premiums because they are less likely to die in the near term.
Health. Many insurers require you to take a life insurance medical exam and answer health questions. Poor health can mean higher premiums.
Gender. Men typically die at younger ages than women, so men often pay more for life insurance. Life expectancy in the U.S. is 79.3 years for women and 73.5 years for men, according to the latest data from the Centers for Disease Control and Prevention.
With most term life insurance policies, premiums and payouts stay the same throughout the term. In this way, term life is one of the more predictable types of life insurance.
» MORE: Average life insurance rates
Term life insurance rates for men and women
Here’s a look at how much you might expect to pay for a $500,000, 20-year term life insurance policy as a healthy applicant.
Average annual cost of term life insurance for nonsmokers
Age | Average cost per year for men | Average cost per year for women |
|---|---|---|
20 | $221 | $181 |
30 | $225 | $190 |
40 | $340 | $288 |
50 | $834 | $655 |
60 | $4,575 | $3,187 |
Source: Quotacy. Lowest three rates for each age averaged. Rates reflect premiums paid monthly for one year. Data valid as of March 20, 2024. | ||
Average annual cost of term life insurance for smokers
Age | Average cost per year for men | Average cost per year for women |
|---|---|---|
20 | $775 | $557 |
30 | $815 | $670 |
40 | $1,497 | $1,163 |
50 | $3,526 | $2,565 |
60 | $8,773 | $6,155 |
Source: Quotacy. Lowest three rates for each age averaged. Rates reflect premiums paid monthly for one year. Data valid as of March 20, 2024. | ||
Term life insurance shopping guide
If you've settled on term life insurance, there are a few decisions you'll need to make to get the policy that best fits your needs.
1. Know the types of term life policies
Level-premium term life is a common type of term life insurance and the right choice for many people. In most cases, your premiums stay the same every year, and your beneficiaries receive the death benefit if you die while the level term life policy is active. According to the Insurance Information Institute, 20-year policies are the most popular.
Renewable term life gives you the option to renew your coverage after the term expires, even if your health would otherwise prevent you from buying a new policy. However, your premiums may increase when you renew. Annual renewable term is an example of this type of coverage, and it's suitable for those with a brief life insurance need — like covering a short-term loan. Otherwise, you’ll likely save money by locking in a rate with a longer level-premium policy.
Decreasing term life policies have a life insurance death benefit that goes down over time, though premiums usually stay the same. One example is mortgage protection insurance. People may choose this type of policy to cover a specific debt that they plan to pay off during the term.
2. Consider policy riders
Some companies offer extra features called life insurance riders, often for an additional fee. Here are a few common life insurance riders.
3. Understand the approval process
Before you buy coverage, insurers typically want to know how healthy you are. You may need to answer some health questions, and it’s important to be truthful. Companies can reject a life insurance claim if the application was inaccurate or incomplete.
The approval process varies based on the type of policy you're applying for:
Fully underwritten life insurance typically requires a medical exam. A medical professional may take blood and urine samples and check factors like your weight, height and blood pressure. Even if you have some health issues, you can generally find the lowest price by applying for a fully underwritten life insurance policy.
Simplified issue life insurance doesn’t require a medical exam. You’ll still answer health questions, and the insurer may pull data about you from other sources, such as your prescription drug history and driving record.
Guaranteed issue life insurance skips both the questionnaire and exam and doesn’t require any information about your health.
For some people, accelerated underwriting is another way to get life insurance without a medical exam. You answer health questions online or by phone, and the insurer uses outside data and sophisticated algorithms to evaluate your application. You might get rapid approval, with rates similar to those you’d get if you’d taken an exam. However, if you’re in less-than-perfect health, some companies that offer instant life insurance may require a medical exam before deciding whether to approve your application.
If you have a hobby or occupation that’s considered dangerous, like scuba diving or aviation, you can expect to pay higher rates. Some insurance companies may also deny you coverage or exclude deaths resulting from a dangerous activity from being covered. Find out whether your hobby is covered and how much it will cost you before you commit to a plan. If the premiums seem unreasonable, keep shopping around.
4. Compare prices
Every insurer has its own criteria for setting rates, so premiums can vary — sometimes significantly. It's worth getting quotes from a handful of insurers to make sure you're locking in the lowest possible rate.
It’s easy to compare life insurance quotes online for term policies. Be sure to choose the same coverage amounts and options for each policy you compare.
» MORE: Cheap life insurance companies
More about term life insurance
Learn more about how term life insurance works, and find the right coverage for you.
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