- Our recommendation:
- What is term life insurance?
- Types of term life insurance
- How much does term life insurance cost?
- Term life vs. whole and universal life insurance
- Benefits of term life insurance
- What happens if I outlive my term life policy?
- Should I buy no medical exam term life insurance?
- Who buys term life insurance policies?
- How much term life insurance do you need?
- Term life insurance riders
- How to buy term life insurance
- 5 ways to save on term life insurance
- FAQ: Term life insurance
Our recommendation:
When purchasing term life insurance, consider the following factors to ensure you get the right coverage for your needs.
- Evaluate your financial needs: Tally up your outstanding debts, mortgage payments, and future financial obligations such as college tuition, retirement savings and how much money you plan to provide to your family. Your death benefit should at least meet this amount.
- Choose the right policy length: Select a term length that lasts as long as all of your financial obligations. For example, if you have young children, you may want a policy that provides coverage until they're financially independent. Conversely, if you're nearing retirement and have fewer financial obligations, a shorter-term policy may be enough.
- Shop around: Compare quotes from multiple insurance companies to find the most competitive rate for your age, health status, and coverage needs.
- Reassess your coverage regularly: Life insurance needs change over time as you experience major life events such as marriage and growing a family. Regularly review your term life insurance coverage to ensure it still meets your needs and make adjustments as necessary so that your loved ones are adequately protected.
What is term life insurance?
Term life insurance pays your beneficiary a guaranteed death benefit amount if you die during the term. Terms are usually between 10 and 30 years, but some companies may offer shorter or longer term options.
Because of the limits of the term, life insurance companies charge lower rates for term life than they do for a permanent policy like whole life insurance or universal life insurance. The risk of dying during the set term is lower than with a permanent policy. The shorter the term, the lower the risk.
Types of term life insurance
There are several variations of term life insurance, all with slightly different underwriting or coverage features.
- Guaranteed level term life insurance (The premium and death benefit do not change)
- Return of premium term life insurance (If you don’t die during the term, premiums are returned to you)
- Annual renewable term life insurance (Renews every year; rates will increase)
- Decreasing term life insurance (Death benefit and premiums reduce over time)
- Modified term life insurance (Premiums change over time, but death benefit doesn’t)
In addition, a term life insurance policy may be either fully underwritten (you undergo a medical exam) or simplified issue, also known as no medical exam term life. No medical exam options generally cost more, as the insurance company is taking the risk that you have no serious conditions.
EXPERT TIP: Guaranteed level term life insurance is a good choice for most people; it's simple, affordable and allows you to get more coverage for your insurance dollar. If you're healthy, don't skip the medical exam. You'll likely get lower rates with a fully underwritten policy.
How much does term life insurance cost?
The average term life insurance cost is $528 a year for a 30-year-old male non-smoker with a death benefit of $250,000 and a 30-year policy term.
It’s generally more affordable than people think.
"Consistently, consumers have told our researchers they believe they can't afford life insurance, but when we dug deeper, our research showed that many overestimate the cost by as much as 300%," says Robert Kerzner, LIMRA's president and chief executive officer.
Many factors go into the cost of term life insurance, including age, gender and health status. Here are the average annual premiums for term life death benefits of $250,000 for people classified as "regular" health.
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Average annual premiums for term life insurance at $250,000
| Health profile and term length | Age 30 | Age 40 | Age 50 | Age 60 |
|---|---|---|---|---|
| Female non-smoker 10-year term | $223 | $306 | $573 | $1,184 |
| Female non-smoker 20-year term | $314 | $477 | $955 | $2,310 |
| Female non-smoker 30-year term | $431 | $695 | $1,537 | $7,300* |
| Female smoker 10-year term | $439 | $692 | $1,482 | $3,072 |
| Female smoker 20-year term | $669 | $1,185 | $2,386 | $5,219 |
| Female smoker 30-year term | $915 | $1,655 | $3,695 | $13,030* |
| Male non-smoker 10-year term | $263 | $358 | $735 | $1,716 |
| Male non-smoker 20-year term | $368 | $565 | $1,226 | $3,128 |
| Male non-smoker 30-year term | $528 | $874 | $2,023 | $7,300* |
| Male smoker 10-year term | $553 | $866 | $1,970 | $4,424 |
| Male smoker 20-year term | $826 | $1,487 | $3,176 | $7,100 |
| Male smoker 30-year term | $1,166 | $2,140 | $4,470 | $13,030* |
*Limited quotes available. Data source: Compulife Quotation System, 2023.
Term life vs. whole and universal life insurance
If you’re trying to decide between term and whole life insurance (or universal life), look at the quick comparison chart below.
| Term | Whole | Universal | |
|---|---|---|---|
| Premiums | Level | Level | Flexible |
| Death benefit | Level/guaranteed | Level/Guaranteed | Flexible |
| Length of coverage | Expires at end of term | Entire life | Entire life |
| Cash value | No | Yes | Yes |
| Medical exam | Sometimes | Sometimes | Yes |
| Cost | Lower | Higher | Higher |
It’s important to note that permanent life insurance, especially universal life, should be discussed with an insurance expert and a financial advisor before you make a purchase to be sure it’s right for you.
Benefits of term life insurance
Here are some reasons why term life insurance might be a good fit for families on a budget.
- Less expensive. Term life insurance offers extensive coverage at an affordable rate.
- Easy to understand. While policies like universal life can be complex, term life is straightforward.
- Flexibility. You choose the term length and death benefit.
- Death benefits are tax-free. Your beneficiaries won’t be taxed on the death benefit.
- No penalties or cancellation fees. You can cancel your term policy without incurring any fees or penalties.
- Convertible. You can convert to permanent coverage at the end of the term in most cases.
Of course, there are pros and cons of term life insurance. For most people, the biggest downside is that the coverage expires, and there is no return on the investment. Term life doesn't have a cash value component, either, unlike whole life insurance. However, like all insurance, term life insurance is peace of mind for the “what if,” and that’s really what you are paying for.
What happens if I outlive my term life policy?
If you outlive your term policy, the coverage will end, and you will not receive anything back from the insurance company.
Return-of-premium term life is the only exception; however, it’s more expensive than a regular term policy.
The purpose of term life is to provide coverage when it’s most needed and then to expire when you no longer need it. However, if you reach the end of your term and discover that the need is still there, you can convert the policy to a permanent life insurance plan, like whole life insurance.
You will pay higher rates because you are older, but you won’t have to take a new medical exam in most cases.
Should I buy no medical exam term life insurance?
A medical exam is usually required when applying for a standard term life insurance policy. The exam will check your height, weight, medical history, and smoking habits and include a blood and urine test. These tests will look for specific medical problems.
The results may hinder you from getting approved for insurance, or you may wind up with much higher rates depending on the outcome. If you have health problems, you might want to consider a "no medical exam" term life insurance policy, known as simplified issue life insurance.
These policies require only a few health questions and no medical exam. You will pay a higher premium for a no-exam life insurance policy, so if you are in good health, a traditional policy is your best bet.
Who buys term life insurance policies?
Anyone who needs to provide financial protection in the event of their death and needs that coverage for a specific period of time, can look to term life insurance.
Cameron Ellis, an assistant professor in the Department of Risk, Insurance, & Healthcare Management at the Fox School of Business at Temple University, says that getting life insurance as soon as someone else depends on your income is a good idea.
"This could be when you and someone else sign a lease together or purchase a car/home. Or it could be whenever you have children. If one spouse is 'stay at home,' I would still recommend they purchase some life insurance. Even though there is no lost income, replacing the lost childcare and domestic duties can be very expensive," Ellis says.
Term life insurance is the simplest type of life insurance to get and it's become even easier to get approved these days.
"Insurance companies are offering term life insurance products today that speed up the underwriting process and may not include a medical exam for policies within a certain benefit amount and for a person under a specific age, say 50 years old," Carrie Skogsberg of COUNTRY Financial Life Insurance says.
Term life is a good choice for most people, and is more affordable than permanent life insurance.
How much term life insurance do you need?
When deciding how much life insurance you need, think about:
- Funeral costs
- How much it will cost to replace your income
- The services that would need to be paid for, such as childcare
- Your outstanding debts, such as mortgages, credit card bills and loans
- Long-term financial commitments, such as paying for college
You can use Insurance.com’s life insurance calculator to determine how much coverage you should have. The life insurance calculator considers your funeral costs, mortgage, income, debt and future education to give you a clear estimate of the ideal amount of life insurance coverage.
Term life insurance riders
Term life policies can include extra features or riders for additional coverage.
Here are some common term life riders:
- Accidental death. Pays out additional benefits if your death is accidental.
- Family income benefit. Replaces lost income.
- Guaranteed insurability. Lets you add coverage to your policy without going through a medical exam later.
- Long-term care. The rider helps if you need long-term care in a nursing home or home care.
- Waiver of premium. Waives your premium if you become disabled or lose your income due to injury or illness.
How to buy term life insurance
When shopping for the best life insurance company, there are a few steps to follow:
- Find the top life insurance carriers. You can start your search by checking out Insurance.com’s ranking of the best life insurance companies.
- Check financial stability. You can review financial stability ratings from agencies such as Moody's, S&P Global, A.M. Best, and Fitch to get an idea of the company’s strength.
- Read customer reviews. See what others have to say about their experience with the insurer.
- Compare rates. Once you have narrowed your choices, get quotes from your top picks and compare rates.
5 ways to save on term life insurance
Once you've narrowed down your list of the best term life insurance companies, your next focus should be getting the best rate. Here are five ways to save on life insurance:
- Shop around. The best way to ensure you have the best rate is to compare rates from multiple companies.
- Don’t over-insure. You might not need as much coverage as you think. Make sure to use a calculator so you don’t overpay.
- Check with your employer. You might be eligible for a group policy through work, which is usually cheaper.
- Quit smoking. You’ll qualify for cheaper rates.
- Improve your health. Losing weight and correcting issues like high cholesterol and high blood pressure can earn you a cheaper rate.
- Don’t wait to buy. Unless you are trying to improve your health, it doesn’t pay to wait. The younger you buy life insurance, the more you will save.
FAQ: Term life insurance
Is term life insurance worth it?
Like all life insurance, it’s worth it if you need it. But even if you don’t use it and hope you won’t have to, purchasing a life insurance policy brings peace of mind that is well worth the cost.
How much does term life insurance cost per month?
The monthly cost of term life insurance depends on various factors, including your age, health status, the term's length, and the death benefit amount. Get quotes for your particular situation to find out what your rates will be.
What does term life insurance cover?
There are no rules regarding how the death benefit can be used. Common uses include:
- Paying college expenses for children
- Paying off a mortgage
- Funeral expenses
- Debt
What happens to the overall annual premium cost once a term rider expires?
After the term rider expires, the premium will return to the cost without the rider.
What happens at the end of a 20-year term life insurance policy?
When the 20-year term is up, the policy will expire unless you choose to convert it to a permanent life insurance policy.
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