Term life insurance provides protection for specific needs, such as college or a mortgage. Beneficiaries receive a death benefit if the policyholder passes away.
As Insurify’s home and pet insurance editor, Danny also specializes in auto insurance. His goal is to help consumers navigate the complex world of insurance buying.
Evelyn PimplaskarEditor-in-Chief, Director of Content
10+ years in insurance and personal finance content
30+ years in media, PR, and content creation
Evelyn leads Insurify’s content team. She’s passionate about creating empowering content to help people transform their financial lives and make sound insurance-buying decisions.
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Term life insurance is the most affordable and straightforward type of life insurance. It provides temporary coverage for a set period of time, typically 10, 20, or 30 years.
Term life is a good option for people looking for coverage for specific goals, like paying for a mortgage or for higher education. In this article, we’ll dive into how term life insurance works, the various types available, what affects costs, and how to buy it.
What is term life insurance, and how does it work?
All life insurance provides financial security for your loved ones if you pass away. Term life insurance is temporary coverage that pays your beneficiaries a pre-determined death benefit if you die while the policy is in effect.[1] It can replace your income, pay off debts, pay for college, and pay for other financial goals. Common terms are 10, 20, and 30 years.
Because it’s temporary, term life is usually the most affordable type of life insurance. Premiums stay the same throughout the policy term, so your monthly or annual payment won’t change.
Unlike whole life insurance, term life doesn’t have any cash value, meaning you can’t access any of the money from the policy if you’re still alive.
Term life insurance is a great option for young families, new homeowners, and anyone who needs temporary financial protection for their families. Once the policy term ends, you may have the opportunity to renew it. Or you may choose to let it lapse or convert it into a permanent life policy.
If you choose to renew, your premiums will likely increase since you’ll be older and at a higher risk of health complications.[2]
Pros and cons of term life insurance
Because it’s temporary and the most basic type of life insurance, term life insurance isn’t right for everyone. It’s important to weigh term life’s advantages and disadvantages before choosing a life insurance policy.
Pros
Affordable: Term life insurance is typically very affordable.
Simple: These policies are very straightforward, making them easy to buy.
Good value: Term life insurance allows you to provide a substantial death benefit for a comparatively low cost.
Cons
No cash value: Term life insurance policies don’t have any investment or savings components like some other life insurance policies do.
Increasing premiums with age: If you decide to renew your policy once your term expires, your new premium will be more expensive.
No payout if you outlive the term: If you outlive your policy, you’ll get no payout at all, meaning you lose all the money you paid toward your premiums.
Types of term life insurance
You can choose from various types of term life insurance. The right policy for you depends on your lifestyle, your budget, and what’s important to you in a life insurance policy. Here are some common types of term life insurance policy and the key differences among them.
Type of Term Life
▲▼
Key Features
▲▼
Best For
▲▼
Level term
Fixed monthly premium, fixed death benefit amount, common type of term life insurance
Reliable coverage for a set period of time (the “term”) — typically 10–30 years
Decreasing term
Benefit amount shrinks each year, fixed premium, used with mortgages
Coverage for a debt that you’re paying off over time
Renewable term
A term policy that you can renew at the end of the term, typically without a medical exam
Lower, fixed premiums and the ability to extend coverage beyond the initial term
Convertible term
At the end of the initial term, the policyholder can convert the policy to a permanent policy, without a medical exam, and regardless of health issues; premiums will typically be higher
People who want to ensure affordable premiums despite changing medical conditions; people with a family history of medical issues; anyone who wants the flexibility to turn a term policy into permanent coverage
Return of premium
Premiums returned if death benefit not used, higher premiums, increasing rates with age
People who want to put premiums toward future payments, such as college or retirement
Each of these types of term life insurance has advantages and disadvantages. It’s important to understand how each works before selecting a life insurance policy.
Level term: Level term life insurance has a fixed monthly payment and death benefit for the entire duration of the policy. It’s a standard type of life insurance, good for people who want to buy it and forget about it. But keep in mind that if you outlive the term of the policy, your loved ones won’t receive a death benefit and the money you paid for premiums will be gone.
Decreasing term: Policyholders pay a fixed premium for decreasing term life insurance, but the death benefit amount decreases each year. These policies generally have inexpensive premiums, making them good options for people looking to save money. They can work well if you’re paying down a debt and just want insurance to cover the unpaid balance if you pass away.
Renewable term: With renewable term policies, you’ll have the option to renew at the end of the initial policy term. You may be able to renew the policy for the same amount of time as the original term. And you can typically renew without taking a medical exam. But premiums rise when you renew, so these policies are typically a good option for people only looking for temporary coverage.
Convertible term: Convertible policies allow you to turn an in-force term policy into a permanent policy without having to undergo the typical underwriting process. It doesn’t require a medical exam or consider medical conditions when converting, so it’s a good option for people with a history of family medical issues.
Return of premium: With most term life insurance policies, you won’t get any money (either as a death benefit or refund) if you outlive the policy term. But return-of-premium policies allow you to get some of your premiums back at the end of your policy term if you don’t pass away. This coverage is typically a rider that you can add to a term life policy. Return-of-premium term life can be a good option for people who want to have not only protection but also money for future investments.
Cost of term life insurance
Various factors affect the cost of term life insurance, including your age, health, gender, lifestyle, occupation, coverage amount, term length, and family medical history.
Age
Younger people tend to pay lower premiums for life insurance, as they’re usually at lower risk of passing away.
Health
Your health plays one of the largest roles in your life insurance cost, as it has a direct impact on how likely you are to need your death benefit. The healthier you are, the lower your premiums will be.
Gender
Men almost always pay more than women, as they statistically live shorter lives than women. They’re also more likely to die of injury or in a vehicle crash, data shows.[3][4]
Lifestyle and occupation
Your job and lifestyle both affect your premium. Higher-risk jobs and adventurous lifestyles will typically lead to higher premiums. For example, police officers and firefighters likely pay higher premiums because of the inherent risks of their jobs.
Coverage amount
The higher your death benefit is, the higher your premiums will be, as your insurer is on the hook for more financial risk.
Term length
The shorter your term is, the lower your premium will be, as your insurer is financially responsible for a shorter amount of time and thus faces less risk.
Family medical history
If your family has a history of hereditary diseases, your premiums will likely be higher than someone without that history. A family history of a certain illness may mean you’re more susceptible to conditions that could result in a payout.
The following table provides average monthly term life insurance rates based on age, gender, term length, and death benefit amount.
Age/Gender
▲▼
Term
▲▼
Monthly Premium for $250,000 Policy
▲▼
Monthly Premium for $1 Million Policy
▲▼
25-year-old woman
30 years
$14
$35
25-year-old man
30 years
$17
$46
45-year-old woman
20 years
$33
$113
45-year-old man
20 years
$42
$145
55-year-old woman
10 years
$91
$330
55-year-old man
10 years
$118
$449
Source: Insurify partner SelectQuote provided these averages based on 20-year and 30-year term policies from one or more of the companies SelectQuote represents. Rates are for men and women in excellent health. Premiums may vary depending on individual health, issuing company, and other factors.
How to buy term life insurance
Buying term life insurance is fairly easy, but you’ll want to make sure you’re prepared before signing anything.
Assess your needs. Start by looking at your needs and considering why and if you need life insurance. If you have loved ones who depend on you financially, or you have debt that could pass on to your family if you die, you may need life insurance. If you decide you do, calculate how much coverage you need and decide on a term length.
Compare policies and quotes. Once you know what you’re looking for, start comparing life insurance companies and get quotes from each.
Choose an insurer. Find an insurer that fits your needs for an affordable rate. Don’t just choose the cheapest option. Read company reviews online to ensure the company is reliable and financially stable.
Complete the application. Once you’re comfortable with your choice, you’ll need to complete an application detailing your medical and financial history along with other personal information.
Take a medical exam. Some life insurance companies may require you to complete a medical exam before getting a policy. If this is the case, schedule an exam as soon as you can to confirm your status with your insurer.
Review and finalize your policy. Take a final look at your policy and consider if you need to add on any insurance riders. Make sure you understand your policy before signing anything.
Start paying your premiums. Once you’ve signed, you’ll just need to start paying your premiums to ensure your coverage remains active. It’s important to pay your premium on time every month to ensure your policy stays in force.
How to calculate how much life insurance you need
The main purpose of life insurance is to protect your loved ones financially if you pass away. Common goals for life insurance include replacing your lost income, paying off debts, paying for your children’s college tuition, and securing your survivors’ financial future.
You can calculate how much life insurance you need in several ways. A general rule of thumb is to buy coverage that equals 10–15 times your annual income. Another way to decide is to consider specific expenses, such as funeral costs and future purchases.
One of the most reliable methods, however, is the DIME formula. DIME stands for “debt, income, mortgage, and education.” Essentially, you add all these factors together to estimate how much coverage you should buy. Here’s how it works:
How to save on term life insurance
Term life insurance can be a long-term commitment, so it makes sense to find the best price available to you. Here are some ways to save money on your term life insurance policy:
Buy a policy when you’re young. Buying life insurance when you’re young can get you lower premiums, as the older you get, the more risk insurance companies assume.
Follow a healthy lifestyle. Avoid bad habits like smoking, and stay active to keep your health in top shape. The healthier you are, the lower your premiums will be. Some insurers even offer discounts to non-smokers.
Compare quotes. Always compare insurance quotes from multiple life insurance companies before buying a policy. Some insurers may offer cheaper rates than others for the same coverage.
Bundle policies. Try to bundle your life insurance with your home insurance or auto insurance. Many insurers offer a discount if you buy multiple policies with them.
Pick the right term length. Make sure to choose the right term length. Don’t choose an unnecessarily long term, as it will increase your premiums.
How term life insurance works FAQs
Still have questions about term life insurance? Check out these answers to some of the most commonly asked questions about how term life insurance works.
Which is better, term life insurance or whole life insurance?
Neither term life insurance nor whole life insurance is inherently better than the other. The right policy for you depends on your needs and budget. Term life insurance can be better for people who want affordable, temporary coverage, while whole life insurance may work better for people who want lifelong coverage with a cash value component.
Do you get your money back at the end of a term life insurance policy?
With most term life insurance policies, you won’t get your money back at the end of the term. But you can buy a policy with a return-of-premium rider. This will increase your premium but ensure you get your money back at the end of the policy if you don’t pass away.
Can a senior citizen get term life insurance?
Yes, a senior citizen can get term life insurance. But rates for senior citizens will likely be higher, as the likelihood of a payout is greater than it is for younger people.
When should you get term life insurance?
You should get term life insurance when you have financial dependents, debts, or future obligations, such as a mortgage, car payment, or children who will need your financial support even if you pass away. It’s best to get term life insurance when you’re young, as rates increase as you age.
Danny is a Brooklyn-based writer with a producer’s license for property and casualty insurance. A former editor at Insurify, he specializes in auto, home, and pet insurance. He works to translate his insurance expertise into digestible, easy-to-understand content for drivers, homeowners, and pet owners alike.
Danny has been a contributor at Insurify since March 2022.
Evelyn PimplaskarEditor-in-Chief, Director of Content
10+ years in insurance and personal finance content
30+ years in media, PR, and content creation
Evelyn leads Insurify’s content team. She’s passionate about creating empowering content to help people transform their financial lives and make sound insurance-buying decisions.
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