What is term life insurance?
Term life insurance is a policy that lasts a set term — usually between 10 and 30 years — and then it expires.
You make premium payments in exchange for coverage. If you die during your policy’s term, the insurer will pay your beneficiaries a tax-free sum of money called the death benefit.
At the end of the term, your coverage will expire (unless you renew your policy).
Term life is the most affordable way to provide a financial safety net for your loved ones.
It’s easy to manage and provides coverage during the period of your life when you have the biggest expenses, such as a mortgage to pay off, or young children to support.
How does term life insurance work?
To activate a term life insurance policy, you’ll have to complete an application that includes a health and lifestyle questionnaire. Subsequent requirements, including a medical exam or medical records from a physician, vary based on carrier, product, age, and benefit amount. After that, the insurance company will review your application materials.
Once you’re approved, you’ll sign your policy paperwork and pay your first premium to activate your coverage.
You’ll have financial protection as long as you continue paying your premiums — until the end of the term.
In most term life policies, your premium payments and your death benefit remain the same for the length of your policy. This makes it easy to plan your budget.
Unlike whole life insurance, term life insurance doesn’t have a cash value feature, so it can’t be used as an alternative savings or investment vehicle.
Insurers evaluate your application through a process called underwriting, which typically includes a review of your age, health history, lifestyle, and the coverage amount you're seeking.
Depending on your age, health, and coverage amount, you may qualify for a no-medical-exam policy, which can often be approved more quickly.
What are the different types of term life insurance policies?
The main differences between the different types of term life policies on the market have to do with the length of the term and the coverage amount they offer.
Level term life insurance comes with both level premiums and a level death benefit, which means they stay the same throughout the duration of the policy. This is the most common and popular type of term life insurance.
Annual renewable life insurance is also known as yearly renewable term, and has a term of only one year. It can be renewed on a yearly basis, but premiums will increase every time you renew the policy. This type of policy may make the most sense for someone who needs short-term coverage or is between longer-term policies.
Increasing term life insurance, also known as an incremental term life insurance plan, is a policy that comes with a death benefit that increases over time. It’s usually more complex and expensive than level term.
Decreasing term life insurance comes with a payout that decreases over time. It’s commonly used to cover loans, like a mortgage. The most popular type of decreasing term policy is mortgage protection insurance (MPI). Keep in mind that a decreasing term policy may not provide the same flexibility as a level term policy, since the death benefit reduces over time even if your family’s broader financial needs do not.
Return-of-premium life insurance refunds all or part of your premium payments if you outlive the policy’s term. It’s usually two to three times more expensive than level term.
Convertible term life insurance allows you to convert your policy to permanent life insurance at the end of the term, up to a certain age or during a specific conversion window. Product availability for conversion is also subject to varying windows.Conversion rules, deadlines, and available permanent policy options can depend on the insurer and policy terms.
Level term life insurance is a common starting point for policy selection. That’s because premiums and the death benefit remain consistent even as personal circumstances change, making it straightforward to budget and plan around. Specialized policy types may cost more or work better for specific financial and personal situations.
How to choose a term length
One of the most important decisions you’ll make when buying term life insurance is choosing how long your coverage should last. As a rule of thumb, your term length should match the number of years you expect to need financial protection.
A few common benchmarks to consider before deciding on term length:
Years until your children are financially independent. If your youngest child is five, a 20-year term would essentially cover them through age 26.
Years remaining on your mortgage. A term that aligns with your mortgage payoff timeline ensures your family could cover housing costs if you were no longer around.
Years until retirement. If your retirement savings would provide enough support for a surviving spouse, you may only need coverage until your retirement benefits kick in.
Duration of other significant debts. Business loans, co-signed student loans, or other major financial obligations and how long you need to pay them off are worth factoring in.
If you’re trying to make the most cost-effective decision, remember that longer term policies typically cost more, but they also lock in your current rate for more time. This can be advantageous if your health changes over time. Choosing too short a term can mean reapplying for coverage when you’re older or in different health, which could result in higher premiums or difficulty qualifying.
If you’re unsure which term length fits your situation, a licensed insurance agent can help you think through your options.
What are the main pros & cons of term life insurance?
Pros
Term life insurance is affordable. Even though 50% of non-life insurance owners cite cost as a reason they don’t have coverage, [1] term life is one of the cheapest kinds of life insurance. You can often get the coverage you need at a manageable price.
Term life is easy to manage and understand. Unlike permanent options like whole life insurance or universal life insurance, term life policies don’t have any complex tax implications or restrictions.
It provides coverage when you most need it. Term life offers financial protection during the period of your life when you have major financial obligations to meet, like paying a mortgage or funding your children’s education.
Cons
Term life insurance has an expiration date. At the end of the term, you’ll need to buy a new policy, renew it at a higher premium, or convert it into permanent life insurance if you still want coverage.
Term life doesn’t have a cash value savings component. Unlike permanent life policies, term life policies only offer a guaranteed lump-sum death benefit.
Your health could affect future coverage options. If your health changes before your term expires, it may be more expensive or harder to qualify for a new policy later. Locking in coverage while you’re younger and healthier can help ensure more predictable coverage.
Who should consider a term life insurance policy?
Anyone looking for an affordable, easy way to offer their loved ones a financial safety net for a set period of time in the event of their death should consider buying term life insurance.
Newlyweds, married couples, and people who share expenses with a partner. Term life can provide your spouse with support if they had to live without your income or contributions to the household.
Parents, guardians, and people planning on having children. Term life is an affordable way to provide a financial safety net when raising children.
Homeowners with a mortgage, or people with other significant debt. A term life policy can help your dependents cover any outstanding debts they might be responsible for in your absence.
Business owners and business partners. Term life insurance can help protect a business from financial disruption if an owner or key partner dies. The policy may help to cover loan obligations or lost revenue, or fund a buy-sell agreement.
Caregivers supporting relatives. If you provide financial or hands-on support for a parent, sibling, or other family member, term life insurance can help ensure that support continues even if you’re no longer around to provide it.
LIMRA forecasted life insurance new annualized premiums to grow 2-6% in 2026. Term life insurance can provide financial solutions for a wide demographic of people, but it may not be the right fit for everyone. If you need permanent coverage, or lifelong financial support for a dependent, a permanent life insurance policy may better meet your needs. A licensed agent can help you weigh your options. [2]
How much does term life insurance cost?
A 30-year-old non-smoking female in good health can expect to pay $22 per month ($264 per year) for a 20-year term life insurance policy with a $500,000 payout. A 30-year-old with a similar health profile can expect to pay $29 per month ($336 per year) for a policy with the same coverage.
Average monthly term life insurance rates
Methodology: Average monthly rates are calculated for male and female non-smokers in a Preferred health classification obtaining a 20-year $250,000, $500,000, or $1,000,000 term life insurance policy. Life insurance averages are based on a composite of policies offered by Policygenius from Brighthouse Financial, Corebridge Financial, Foresters Financial, Legal & General America, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica, and the Policygenius Life Insurance Price Index, which uses real-time data from leading life insurance companies to determine pricing trends. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 09/01/2024.
Is term life insurance better than permanent life insurance?
Term life is a good fit if you’re looking for an affordable life insurance policy that only lasts for a set period of time. If you need permanent coverage or are considering a policy with a cash value component, permanent life might be a better option for you.
The main differences between term life and whole life are:
The length of your coverage: Term life lasts for a set period of time and then expires, which can be considered renting coverage for a defined term. Permanent life insurance, particularly with a cash value component, provides the opportunity to own your coverage instead of renting it. It’s an asset you can leverage for reasons beyond the death benefit protection. If you have long-term financial obligations or coverage needs, like dependents who require lifelong care, whole life insurance might be a better fit.
The cash value: Whole life policies offer a separate cash value account, which you can borrow from while you’re still alive. Term life only offers a lump-sum payout called the death benefit.
The cost: Whole life is significantly more expensive than term life, but the higher cost comes with ownership of permanent coverage.
Comparing term life vs. whole life
*Methodology: Average monthly term life insurance rate is for male and female non-smokers with a Preferred health classification obtaining a 20-year, $500,000 policy. Term life insurance averages are based on a composite of policies offered by Policygenius from Brighthouse Financial, Corebridge Financial, Foresters Financial, Legal & General America, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica, and the Policygenius Life Insurance Price Index, which uses real-time data from leading life insurance companies to determine pricing trends. Average monthly whole life insurance rate is calculated for non-smokers in a Preferred health classification, obtaining a whole life insurance policy paid up at age 100 offered by Policygenius from MassMutual. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 10/01/2024.
Read more about the differences between term life and whole life insurance
Where's the best place to buy term life insurance?
At Policygenius, an independent licensed insurance broker, our agents can help you compare quotes from different term life insurance companies to find the right coverage at a price that works for you. You can also buy life insurance from an unlicensed online marketplace, a platform that connects you with experts or companies to buy life insurance from. Or, if you know which provider you'd like to buy from, you can go directly to an individual insurance company.
Term life insurance FAQs
Does term life insurance pay out if I outlive the policy?
In most cases, no. Standard term life insurance only pays a death benefit if the insured person dies while the policy is active. If you outlive your term, coverage simply ends with the term, which is when to consider a new policy.
The one exception applies to return-of-premium policies, which may refund some or all of your premiums if you outlive the term. However, these policies typically cost significantly more than standard term coverage.
Can I renew term life insurance after it expires?
Some policies allow renewal after the initial term ends, but premiums are usually then much higher because they are recalculated based on your age at the time of renewal. If you think you may need coverage beyond your original term, it’s worth comparing the cost of renewing versus applying for a new policy or supplementing with a permanent policy.
Can I convert term life insurance to permanent life insurance?
Some term life policies include a conversion option that allows you to switch to a permanent life insurance policy within a specific timeframe. Conversion rules and deadlines vary by insurer and policy, so it’s worth reviewing your terms or speaking with your agent before the conversion window closes.
Is term life insurance worth it?
For many people, yes. Term life insurance offers meaningful financial protection at a manageable cost, particularly during the years when loved ones depend most on your income or financial support. Whether it’s worth it for you depends on your financial situation, your dependents, and how long you anticipate needing coverage.
What is the best term length for life insurance?
The best term length depends on how long you need coverage. Many people choose a term that lasts until their children are financially independent, their mortgage is paid off, or their retirement savings would be enough to support a surviving spouse. A licensed agent can help you match your term length to your specific financial picture.
