More on Life Insurance
Coverage and Cost
Life insurance overview
How Much Life Insurance Do I Need?
How much life insurance do I need?
What does life insurance cover?
Risks of not having enough life insurance coverage
How to avoid a life insurance coverage gap
Do I need $1 million in life insurance coverage?
Is it possible to have too much life insurance?
Do I need a per capita or per stirpes death benefit?
How Long Should My Coverage Last?
How long should my coverage last?
What happens if you outlive your term life insurance?
Life insurance laddering strategy
How Much Does Life Insurance Cost?
How much does life insurance cost?
How your job affects your life insurance rates
Do pilots pay more for life insurance?
Life insurance for military personnel
Life insurance for veterans
Life insurance for business owners
Does where you live affect your life insurance policy?
How your half birthday affects life insurance cost
What is a life insurance rider?
Life insurance calculator
Policygenius Life Insurance Price Index
Once you’ve decided that you want term life insurance instead of whole life, you have two more decisions to make: how much coverage you need and how long you want your policy’s term to last.
Determining the coverage amount for your policy is a combination of how much coverage you need (for example, to pay off a certain loan or to pay for a child’s upbringing), how much coverage you can afford (more coverage means higher premiums), and how much you will qualify for (which depends on your age and income).
Deciding on term length is a similar equation: weighing the cost with what’s available for what you need.
Your term life insurance policy should be as long as your financial obligations and outstanding debts
If you don’t purchase a long enough term length and need to buy more life insurance coverage later on, your premiums could be unaffordable
You can always cancel your policy at no additional cost if you purchase too long of a term length
Your policy’s “term length” is the policy’s duration. Most term life insurance policies last 10, 20 or 30 years, but many companies offer additional five- or 10-year increments, some up to 35- or 40-year terms.
You want a term length that covers the entirety of your financial obligations or outstanding debts. If you have a 20-year mortgage, then you’ll want a 20-year term so that those mortgage payments are protected, as long as you keep paying the premiums. Likewise a 30-year term policy will cover you for 30 years. If you die during that time, your beneficiaries will receive a death benefit. But if you die after your term length is over and you didn’t get additional coverage or convert your term policy into a permanent policy, your beneficiaries won’t receive the death benefit.
Bottom line: to ensure your loved ones don’t become liable for your financial obligations, choose a term length that covers your financial obligations.
To determine the optimal term length for your policy, you need to revisit the reason you’re buying the policy in the first place: to protect your family financially if something happens to you and ensure that an unexpected death does not financially burden the surviving members.
Here are some examples of what you should keep in mind:
If you’re a new parent, you probably want a policy that covers the amount of time they’ll be financially dependent on you. That can be anywhere from 20 to 30 years if you plan to cover their college and graduate school tuition.
New homeowners might want to consider a 30-year term, since that’s likely how long your mortgage is. Even if you’ve taken out a 20-year mortgage, you may want a cushion in case you refinance and circumstances change.
Regardless of how much life insurance you need and can afford, your eligibility for your term life insurance policy will also come into play. Life insurance companies want to see evidence of insurability, or justification that you financially qualify for the amount of coverage you’re asking for.
The term length you can get is usually reliant on your age — it accounts for how many years you have before you retire and will no longer make an income or have dependents. The older you are, the more limits you might have when choosing a term length, but some life insurance companies do offer older applicants their longest term length. Each life insurance company approaches this differently, so it’s important to talk to your life insurance agent about what you qualify for.
Once you evaluate your financial obligations you can determine exactly how long your term life policy should last. But it also may be worthwhile to have a policy that lasts longer than necessary. Here’s why:
Your rates increase as you age and your health changes. New diagnoses, either for you or even your siblings or parents, can increase your rates in the future if you need to apply for a new policy. Even if your health remains the same, the cost of life insurance increases 4.5-9% with every year you age. So if you only buy a 20-year term but changes in your life warrant a new policy, you can expect to pay a lot more in your premiums.
Plus, inflation and industry changes mean that you just can’t guess what rates will be 20 years in the future. The rates for a 50-year-old can be costly enough now, but in 20 years they can become unaffordable.
Average life insurance premiums for women
Average life insurance premiums for men
Methodology: Sample monthly premium rates based on 20-year term life insurance policy for a non-smoker male in Preferred health rating; quotes based on policies offered by Policygenius in 2020.
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The math may work out now for you to be financially set once the shorter term expires, but there are many things that could happen in the meantime that could mean your family needs protection beyond that term. Maybe you’ll have another kid, have to stop working, or end up taking care of your parents. As these big life events occur, your life insurance needs change, and often grow.
Plus, there are end-of-life expenses to consider. Depending where you live, end-of-life medical costs hover above $10,000, and the typical funeral can cost your loved ones $8,000 to $10,000. Even if your dependents no longer rely on you, your loved ones could still end up going into debt to cover the costs of your final rites.
Having some coverage beyond your traditional needs can secure your loved one’s financial security, even if they’re not financially reliant on you.
It’s possible that 20 years into a 30-year policy you no longer need your life insurance coverage, and if that does happen you’re not stuck with your policy. At that point, you can lower the policy’s coverage amount, thus lowering your premiums, without going through underwriting again. Or — you can cancel your policy altogether. This is a much cheaper option than reapplying for a new life insurance policy with elevated rates at a later age.
Policygenius can help you decide on the right term length for you at each stage of your life insurance purchasing process.
To start, check out our life insurance calculator below. It asks you a few questions about your financial responsibilities and assets to suggest a coverage amount and a coverage term. But this is just a starting point.
Working with an independent broker like Policygenius for free is the best way to get specific figures based on your health class and personal circumstances.
The longer the term length, the more the policy will cost in monthly premiums. Why? Because a longer term makes it more likely that the insurance company will have to pay out the death benefit. Monthly premiums for a 30-year policy will be higher than a 20-year policy because the higher premiums for those last 10 years will be averaged into the rates.
But the advantage of buying a longer term is that it locks in lower premiums. That means that if you develop a serious illness during the course of the term, your premiums won't increase. Whereas if you bought a shorter term and end up applying for additional coverage later, a new medical diagnosis could mean you’re uninsurable.
It’s important to find the sweet spot for a term length that means you can still afford your premiums while ensuring that once your coverage expires, you will have built up enough savings and assets so that you don’t need insurance anymore.
We pulled sample premiums for a woman with a preferred health rating, which is easier to get when you’re young and healthy. There are four different life insurance health classifications you can get, Preferred Plus is for those in the best health and Standard is for those who have serious medical conditions.
|AGE||$500,000, 20-YEAR TERM LIFE MONTHLY PREMIUM|
You probably understand why choosing the right term length is so important. If you buy coverage young, say when you’re in your 20s, your premiums don’t change that much over the next decade. But if you need more coverage later or there’s been a major change in your health, your premiums are going to be a lot higher. If you have to buy coverage again at the age of 60, you’re paying $192.52 a month, as opposed to $21.65. That means over the course of your policy, you’re going to pay $41,008.8 more.
And this is if you get a preferred health rating when you’re 60 — not accounting for factors outside of your age, like changes in health, lifestyle, or anything else that can get you a lower health classification (and thus, higher premiums).
It’s more expensive to pay for a longer term upfront, but the benefit is that it guarantees coverage at a lower price. Increasing your life insurance policy’s term length is a way to lock in rates and guarantee coverage, no matter what happens with your health.
How long your term life insurance policy should be is going to depend on how much coverage you need, how much you can afford, and if there’s room for a cushion of supplemental coverage. Ideally, your coverage will protect your loved ones from financial duress without breaking the bank. Talking to an agent at Policygenius is the best way to shop around for different policies and find an insurer that can help you find the sweet spot of all three.
Colin Lalley is the Associate Director of SEO Content at Policygenius in New York City. His writing on insurance and personal finance has appeared on Betterment, Inc, Credit Sesame, and the Council for Disability Awareness. Colin has a degree in English from the University of North Carolina at Chapel Hill.
Nupur Gambhir is a life insurance editor at Policygenius in New York City. She has researched and written extensively about life insurance since 2019, with specialties in life insurance companies, policy types, and end-of-life planning. Her writing on insurance and finance has appeared on MSN, The Financial Gym, and end-of-life planning service Cake. Previously, she worked in marketing and business development for travel and tech.
Nupur has a B.A. in Economics from Ohio State University.