Popular Types of Life Insurance

Types of Life Insurance

Term Life Insurance

Whole Life Insurance

No medical exam life insurance

Term life insurance

Term life is the most affordable and straightforward life insurance option for most people. Here’s everything you need to know to find the best policy at the best price.

Nupur GambhirAmanda Shih author photo

Nupur Gambhir & Amanda Shih

Published November 17, 2020

KEY TAKEAWAYS

  • Term life insurance lasts for a defined period (the “term”) and pays a lump sum to your loved ones if you die during the term

  • Policies last 10-30 years and you can purchase riders to customize your coverage

  • If you outlive your policy, you do not receive a refund of premiums you paid previously

  • A term policy is the right choice for most people because it’s affordable and easy to manage

Life insurance offers your family financial protection if you die and are no longer there to provide for them. When you're looking for a policy, you want to make sure that you're getting the best possible coverage at the best possible price. That's where term life insurance comes in.

Unlike permanent life insurance, which lasts for the rest of your life and comes with a cash value to track, term life is straightforward and affordable. It ensures your loved ones have a financial safety net without breaking the bank.

Read on to learn how life insurance quotes are calculated, how to find the best type of policy and life insurance company for you, how much coverage to buy, and why it’s the right way for you to protect your family financially.

What is term life insurance?

Term life insurance lasts for a specific period of time — the term — before expiring. If you die before the term is up, your beneficiary receives a death benefit as a tax-free lump sum of money that can be used for funeral costs, to pay bills, or for any other use.

TERM LIFE INSURANCE POLICY FEATURES
Policy Duration10-30 years
Average Cost$25-35/month
Guaranteed Death Benefit?Yes
Cash Value?No

Methodology: Average cost calculated based on rates for non-smoking males and females between 20 and 40 years old in Ohio, who qualify for a Preferred rate class, obtaining a 20-year, $500,000 term life insurance policy. Individual rates will vary as specific circumstances will affect each customer’s rate. Rate illustration valid as of 11/13/2020.

Understanding the term

The primary element of term life insurance that sets it apart from other types of life insurance is the term.

Terms usually last anywhere from 10 to 30 years, and you pay a monthly or annual premium during this time to keep the policy active. Once the term is up, you no longer pay the premiums and the policy expires.

Depending on the type of term life insurance you have, the premiums can:

  • Stay the same for the entire length of the policy
  • Increase over time
  • Decrease over time, in rare cases

It’s most common for your premiums to stay the same for the entire length of your policy, and most term life insurance you encounter will not have increasing or decreasing premiums.

What happens if term life insurance expires?

The purpose of life insurance is to protect your loved ones from financial obligations if you’re not around to provide for them. But, your financial obligations will evolve over the life of your policy. After your term life insurance policy expires, you’ll likely have a few options:

  • Convert your term policy into a permanent policy
  • Keep your current policy at a higher premium
  • Buy a new policy
  • Let the policy expire

Which option you choose depends on your needs when your policy’s term ends. When you’re still saving for retirement, paying off a mortgage, or raising children, it probably makes sense to keep your current policy at a higher cost or shop for a new one.

But eventually, you’ll accomplish your financial goals and no longer have dependents. At that point, it may not make sense to continue paying for a policy.

Note that if you outlive your policy’s term and let the policy expire, you won’t receive a refund of the premiums you’ve paid into it unless you purchased return of premium insurance.

How much does term life insurance cost?

Since term life insurance protects your family for a set period of time, instead of your entire life, term life premiums offer more affordable life insurance protection than permanent policies like whole life insurance.

Average monthly premiums for a 20-year term life insurance policy

AGE $250,000$500,000$750,000$1 MILLION$2 MILLION
25Male$17.08$27.01$36.98$45.17$83.67
Female$14.22$21.20$28.22$34.49$62.40
35Male$18.66$30.23$40.42$51.55$94.56
Female$16.46$25.39$33.58$42.48$76.83
45Male$35.25$60.76$85.84$113.33$214.52
Female$28.31$47.44$66.35$86.30$161.10
55Male$83.54$150.92$222.39$286.53$558.15
Female$60.15$107.72$154.80$206.37$394.63

Methodology: Rates are calculated for male and female non-smokers in Ohio, who qualify for a Preferred rate class, obtaining a 20-year term life insurance policy. Individual rates will vary as specific circumstances will affect each customer's rate. Rate illustration valid as of 11/13/2020.

The typical term policy is a level term life insurance policy, which means the premium stays the same as long as your policy is active. In general, life insurance quotes are determined by:

  • Health — Unhealthy people, people with a family history of medical conditions, and those who engage in risky work or hobbies are charged more.
  • Age — Older applicants will pay more than younger shoppers. Life insurance costs increase by an average of 4.5-9% per year.
  • Coverage amount — The larger the death benefit amount, the more you’ll pay for the policy.
  • Term length — The longer the policy is in force, the more expensive it’ll be.
  • Riders — Adding certain riders to customize a policy may make it more expensive.

Learn more about how term life insurance costs are determined

The best companies for term life insurance policies

What is the best term life insurance company for you? That depends on your specific situation. Most people prefer to choose the insurer that offers the best price and that’s a good starting point.

However, you should also consider a company’s customer service record, ratings from J.D. Power, A.M. Best, and the Better Business Bureau, and what tasks you can do online versus on paper or over the phone, for your convenience.

Take into account how each company treats certain health conditions and lifestyle choices. This can make a huge difference in the final cost of your term policy. Policygenius conducts a robust review of the top life insurance companies to determine where they stand.

Learn more about the best term life insurance companies

Types of term life insurance

While term life insurance is the most basic, straightforward type of life insurance, there are some variations on term life that might better suit your needs. These include:

What are term life insurance riders?

Life insurance riders are add-ons to your policy and can make your policy work for you while you are still alive. Some life insurance riders are expensive and may not be worth the additional cost but others are beneficial and available for free.

Common term life insurance riders include:

  • Term conversion rider — Usually included at no additional cost and converts your term life insurance policy into a whole life insurance policy when it expires.
  • Accelerated death benefit rider — Pays out the death benefit if you are diagnosed with a terminal illness and have a life expectancy of 12-24 months.
  • Return of premium rider — Returns some of the premiums you’ve paid if you outlive your life insurance policy's term.

Learn more about life insurance riders

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How much term life insurance do I need?

The amount of coverage a term life insurance policy provides also determines the final premiums. You want to keep the policy affordable (there’s no point in buying a policy that you can’t sustain) while still providing enough for your family’s financial needs.

When deciding how much term life insurance you need, you should take into account:

  • Outstanding debt, like a mortgage
  • Future college costs
  • Dependents, including children and aging parents
  • End-of-life expenses for yourself
  • Any financial cushion your family might need

In general, your term life insurance policy should last as long as your longest debt (usually a mortgage) and should cover any remaining costs when you subtract your debts from your existing assets.

Of course, you don’t need to crunch all the numbers by hand. You can use our free life insurance calculator to get a tailored recommendation for the term length and coverage amount that would be best for you.

Learn how to decide how much life insurance you need

How to buy a term life policy

Each life insurance company is different and the best way to get the right life insurance policy is to work with an independent broker who does the shopping around for you, like Policygenius. An agent can help you find a life insurance company that offers you the best premiums based on your individual circumstances, whether you have a risky hobby like scuba diving or are young and healthy.

After working with an agent to find the best life insurance policy for you, you'll go through the underwriting process so the insurer can evaluate your background and determine your health classification, which sets your life insurance premiums. You won't officially have coverage until you sign your policy's documents and pay your first policy premium.

Check out our full guide on buying life insurance here

Term life insurance vs. whole life insurance

Most insurance shoppers will ultimately decide between buying term life insurance or whole life insurance. Because whole life premiums are more expensive, it isn't the right choice for most people. Whole life can be a better fit for individuals with specific circumstances, such as lifelong dependents or a high net worth, but a majority of people will benefit most from a simple term life insurance policy that they can afford.

Here’s a quick comparison guide:

FEATURESTERM LIFE INSURANCEWHOLE LIFE INSURANCE
Duration1-30 yearsLife
Cost$25-35/month5-15x more than term
Guaranteed Death Benefit?YesYes
Guaranteed Cash Value?NoYes
How Cash Value GrowsN/AEarns interest at a predetermined fixed rate
PremiumsCan increase periodically or stay level for the policy durationLevel
NotesNo risk of losing coverage, but no cash value when term endsNo risk compared to other permanent types, but you may find better investment options elsewhere

→ Check out our full guide on the difference between term life and whole life

Is term life insurance worth it?

Short answer: Yes. Consider the potential pros and cons of term life compared to permanent policies:

Pros of term lifeCons of term life
Cheapest life insurance optionCoverage doesn’t last your entire life
Lasts for a set period of time so you aren’t paying for coverage you don’t needDoesn’t provide a cash-value component
Provides enough financial assistance to pay off debts, cover future costs, and provide a financial safety net

Term life is the right option for most people. If anyone is financially dependent upon you and you don’t have enough money set aside to provide for their financial needs should you die tomorrow, then life insurance should be your top insurance priority. And since term life insurance is cheaper and simpler than a permanent policy, it’s easier to fit it into both your present-day budget and your long-term financial strategy.

Term life insurance FAQ:

How does term life insurance work?

Term life policies last for a set period (usually 10-30 years) and pay a death benefit to your beneficiaries if you die during that time. If you survive the policy, it expires.

What happens if you outlive term life insurance?

If you outlive your term policy, you can either let it expire, buy a new policy, renew at a higher premium, or convert it into a whole life policy. You will not receive a refund of premiums you’ve paid.

Which is better, term or whole life insurance?

Term life insurance is better for most people for its affordability and simplicity. Whole life insurance is significantly more expensive, making it hard to maintain a policy long-term.

How much term life insurance do I need?

Your policy should offer coverage at least 10-15 times your income and enough to cover your largest debt. You should also factor in future expenses, like childcare.

How long should my term life insurance last?

Your term should be at least as long as your longest debt (e.g., your mortgage), and last as long as you anticipate having adult or minor dependents.

Insurance Expert

Nupur Gambhir

Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius in New York City. Previously, she has worked in marketing and business development for travel and tech. She has a B.A. in Economics from Ohio State University.

Insurance Expert

Amanda Shih

Insurance Expert

Amanda Shih is an insurance editor at Policygenius in New York City. Previously, she worked in nonfiction book publishing and freelance content marketing. Amanda has a B.A. in literature and communication from New York University.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.