Coverage and Cost

How Much Life Insurance Do I Need?

How Long Should My Coverage Last?

How Much Does Life Insurance Cost?

Q

How long should my life insurance coverage last?

A

Your term length is based on three factors: how much you need, how much you can afford, and how much you qualify for.

Before buying a term life insurance policy, you have two decisions to make: 

  1. How much coverage do you need? 

  2. How long do 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 qualify for (based on your age and income).

Deciding on term length is a similar equation: weighing the cost of a longer or shorter policy with how long you actually need to be insured.

KEY TAKEAWAYS

  • Your term life insurance policy should last 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 become unaffordable

  • You can always cancel your policy at no additional cost if you purchase too long of a term length

Choosing your life insurance term length

A life insurance policy’s “term length” is the policy’s duration, or how long it will last until expiring. Most term life insurance policies are 10, 20, or 30 years, but many companies offer additional five- or 10-year increments, sometimes up to 35- or 40-year terms.

A term length should cover all of your financial obligations and outstanding debts. If you have a 20-year mortgage, then you’ll want a 20-year term so those mortgage payments are protected. 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 policy runs out and you didn’t get additional coverage or convert your term policy into a permanent policy, your beneficiaries won’t receive the death benefit.

Calculating your coverage length

The optimal term length for your policy depends on the reason you’re buying the policy in the first place. Most people purchase life insurance to protect their family financially in case of an unexpected death.

Some other situations to keep in mind:

If you just had a kid

If you’re a new parent, you need a policy that covers you for the amount of time your children are financially dependent. That can be anywhere from 20 to 30 years if you plan to cover your child past the age of 18 for college or graduate school tuition.

If you’ve just bought a house

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.

If you cosigned a loan

Whether it’s a new car with your spouse, a private student loan with your child, or a small business loan with a partner, you’ll need a life insurance policy that outlasts those outstanding debts and doesn’t leave your co-signers in the lurch. 

Calculating your coverage eligibility

Regardless of how much life insurance you need and can afford, your eligibility for your term life insurance policy also comes into play. Life insurance companies want to see evidence of insurability, or justification that you financially qualify for the amount of coverage you’re requesting.

Term length limits are usually reliant on your age; insurers look at how many years you have before you retire and will no longer make an income or have dependents. The older you are, the fewer options you might have, but some life insurance companies still offer older applicants their longest term length. Each life insurance company approaches this differently, so it’s important to talk to an independent life insurance agent about your specific situation.

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Reasons to consider a longer term length

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. 

1. Your life insurance rates are currently lower than they’ll ever be in the future

The cost of life insurance increases 4.5-9% with every year you age and as your health changes. New diagnoses, either for you or even your siblings or parents, can increase your rates in the future when applying for a new policy. So if you buy a 20-year policy but need to extend your coverage down the road, you can expect to pay a lot more in your premiums.

Plus, inflation and industry changes mean you can’t predict 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 simply unaffordable.

Average life insurance premiums for women

AGE$500,000$750,000$1,000,000 
20 $20.89$28.53$33.97    
25 $20.81$28.31$34.18     
30 $21.88$29.91$36.21     
35 $24.39$33.67$41.56     
40 $32.42$45.71$56.80     
45 $46.36$66.44$83.51     
50 $71.03$103.64$128.87    
55 $105.66$155.68$200.45    
60 $189.08$280.82$351.76    

Average life insurance premiums for men

AGE$500,000$750,000$1,000,000 
20 $27.32$38.17$45.93     
25 $26.67$37.09$44.82     
30 $27.46$38.28$46.81    
35 $28.97$40.55$50.44     
40 $39.02$55.62$69.75     
45 $59.10$85.75$110.40    
50 $93.23$136.94$174.13    
55 $150.72$223.28$282.34    
60 $262.16$390.43$493.42   

Methodology: Sample premiums are for male and female non-smokers with a Preferred health rating based in Ohio; Life insurance averages are based on a composite of policies offered by Policygenius from AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Principal, Protective, Prudential, SBLI, and Transamerica and may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 2/24/2021.

2. Life happens

A shorter term length might make sense today, but many things that could happen in the future. Maybe you’ll have another child, stop working, or need to take care of your aging parents. As these big life events occur, your life insurance needs can change, and often grow.

End-of-life expenses should also be accounted for. Nursing homes average about $8,821 a month for a private room, according to Genworth’s 2020 Cost of Care survey – 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 cushion coverage beyond your traditional needs can secure your loved one’s financial security, even if they’re not financially reliant on you.

3. If you need to, you can lower your coverage (and your premiums)

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 more expensive rates at a later age.

How term length affects cost

The longer your term length, the higher your monthly premiums. Why? Because a longer term makes it more likely that the insurance company will have to pay out the death benefit. 

Here are sample premiums for a 35-year-old male buying a $500,000 policy with a 10-, 20-, and 30-year term length:

TERM LENGTH MONTHLY PREMIUM 
10 years$20.19 
20 years$28.97 
30 years$44.53 

Methodology: Average rates are based on a 35-year-old male non-smoker in Ohio with a Preferred health rating, buying a $500,000 term life policy, as of February 24, 2021. This calculation is a composite of the 11 carriers that offer policies through Policygenius, including AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Principal, Protective, Prudential, SBLI, and Transamerica.

The advantage of buying a policy with a longer term is that it locks in lower premiums. That means that if you develop a serious illness during the term, your premiums won't increase. On the other hand, if you buy a shorter term length and develop the same serious illness, when you apply for additional coverage later, your older age will automatically mean higher premiums, and the new medical diagnosis could mean you’re uninsurable.

Find a term length that allows you to still afford your premiums. But remember: when your coverage expires, you should still have enough savings and assets to self-insure, especially for end-of-life care.

Sample premiums at different ages

There are four different life insurance health classifications Preferred Plus , Preferred , Standard Plus , and Standard . Preferred Plus is for those in the best health and Standard is for those who have serious medical conditions.

Below are sample premiums for a 20-year policy at different ages for a woman with a Preferred health rating, which is easier to get when you’re young and healthy

AGE$500,000, 20-YEAR TERM LIFE MONTHLY PREMIUM 
20 $20.89                                      
30 $21.88                                      
40 $32.42                                      
50 $71.03                                      
60 $189.08                                     

Methodology: Sample premiums are for female non-smokers with a Preferred health rating based in Ohio, buying a $500,000, 20-year term life insurance policy; Life insurance averages are based on a composite of policies offered by Policygenius from AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Principal, Protective, Prudential, SBLI, and Transamerica and may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 2/24/2021.

As you can see, the cost of coverage doesn’t change that much in your 20s or 30s. But if you buy coverage when you’re older, your premiums will be a lot higher. 

If you have to buy coverage at age 50, you’ll pay about $50 more per month than you did at 20 or 30 (a difference of more than $11,700 over 20 years). And this doesn’t account for 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 up front, but it locks in affordable rates and guarantees coverage, no matter what happens with your health. 

Life insurance term length FAQs

How long is term life insurance?

A term life insurance policy is typically 10, 20, or 30 years. Some insurers offer longer or shorter term lengths between five and 40 years. 

How long should my term life insurance policy be?

Your term length depends on your longest financial obligations (a mortgage, child-raising costs, or outstanding debt); how much coverage you qualify for based on your age, health and income; and how much you can comfortably afford to spend on monthly premiums. 

What happens if I outlive my term life insurance?

If your term life insurance policy expires, then your beneficiaries will not receive a death benefit when you die. Most people no longer need insurance once the policy expires, but you can shop for a new policy or convert your term life insurance into a whole life insurance policy in some cases. A Policygenius can help you understand your options.