Term life insurance

Term life insurance protects your loved ones' financial health if you die unexpectedly — and at a competitive price.

Nupur Gambhir

Nupur Gambhir

Published June 25, 2020

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 — essentially a no-frills life insurance policy, it ensures your loved ones have a financial safety net without breaking the bank.

Got questions? We've got you covered. Read on to learn everything you need to know about term life insurance.

In this article:

What is term life insurance?

Term life insurance is a form of life insurance that lasts for a set number of years — known as the term — before expiring. If you die before the term is up, your beneficiary — usually your family — receives a death benefit as a tax-free lump sum of money that can be used for funeral expenses, to pay bills, or for any other use.

Due to its simplicity and affordability, purchasing term life insurance is one of the most popular ways to create a financial safety net. However, other types of life insurance can be a better fit for individuals with specific circumstances, such as lifelong dependents or a high net worth. Speaking to a life insurance adviser is the best way to determine what type of policy is the best fit for you.

How does a term life insurance policy work?

Term life insurance is very straightforward. There are only a few things you need to know to get started in understanding it.

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

Understanding the term

The primary element of term life insurance that sets it apart from other types of life insurance is the term – how long the policy is in effect.

Term periods 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

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.

When you’re still saving for retirement, paying off a mortgage, or raising children and planning on sending them to college, life insurance makes sense. But eventually you’ll have saved for retirement through a 401(k) or IRA, you’ll have paid off your mortgage, and your kids will be out of the house with families of their own.

So why pay for life insurance when there are few – or no – financial obligations to account for?

The fact that term life insurance expires, and there are no additional fees associated with it, is what makes it the most affordable life insurance option. Don’t fret that your life insurance policy expires: that should be part of the plan.

What happens if I outlive my term life insurance policy?

If you outlive your term life policy, the policy expires and you are no longer covered. You have several options after that:

  • If you still need life insurance coverage, you can purchase a new term life policy (at a higher cost than the original policy).
  • If you still need life insurance coverage, you can convert your policy into a whole life policy.
  • If you had a return of premium policy, the premiums you paid over the policy term will be refunded to you. See below for more on return of premium life insurance.

Understanding the death benefit

If you die while your life insurance policy is still in force, your beneficiaries receive a tax-free amount of money called the death benefit which can be paid out all at once or over the course of their lifetime.

What are the different types of term life insurance?

While term life insurance is the most basic, straightforward type of life insurance, there are still variations on it so you can get the insurance policy that fits your needs. These include:

  • Level term life insurance — The premiums remain the same for the life of the policy. Learn more about level term life insurance.
  • Annual renewable term life insurance — Renews on a year-by-year basis; premiums usually start lower than a standard term life policy and increase each year. Learn more about annual renewable life insurance.
  • Decreasing term life insurance — Premiums remain the same, but benefit amount decreases each year. Learn more about decreasing life insurance.
  • Return of premium term life insurance — Allows you to get your money back at the end of the term. Learn more about return of premium life insurance.
  • No-medical-exam term life insurance — Allows you to skip the medical exam and still receive coverage. Learn more about no-medical-exam life insurance.
  • Group term life insurance — Offered through the workplace, but not portable from employer to employer. Learn more about group life insurance.
  • Mortgage protection term life insurance — A type of decreasing term insurance where the beneficiary is your mortgage provider and the term is pegged to your mortgage length. Learn more about mortgage protection life insurance.

How much does term life insurance cost?

Since term life insurance protects your family for a set period of time while they’re still depending on your income and not for your entire life, term life insurance rates are much cheaper and offer more affordable financial protection than permanent policies like whole life insurance.

AGEMONTHLY COST FOR A POLICY WITH A $250,000 DEATH BENEFITMONTHLY COST FOR A POLICY WITH A $500,000 DEATH BENEFITMONTHLY COST FOR A POLICY WITH A $750,000 DEATH BENEFITMONTHLY COST FOR A POLICY WITH A $1,000,000 DEATH BENEFIT
25$17.48$27.66$38.87$46.15
35$19.05$30.67$43.30$52.16
45$35.54$60.88$88.70$113.03
55$85.75$153.96$225.24$289.64

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.

In general, life insurance costs are determined by:

  • Health. The more likely you are to die while the policy is in force, the more expensive the policy will be. For this reason, unhealthy people, people with a family history of conditions like diabetes or cancer, and those who engage in risky work or hobbies are charged more.
  • Age. Similarly, older applicants will pay more than younger shoppers. Life insurance costs increase at a rate of 8-10% 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 change the stipulations or parameters of a policy may make it more expensive.

➡ Learn more about how life insurance costs are determined.

Because age is one of the major deciding factors in a life insurance policy’s cost, it’s important to know how term life insurance rates increase by age when you’re deciding when to buy and what type of coverage you should get.

What are term life insurance riders?

Life insurance riders are supplemental coverage that you can add on to your term life insurance policy and often offer financial protection even while you are still alive. Some life insurance riders can be exorbitantly expensive and aren't worth the additional cost — but still, some can be a beneficial policy add-on.

  • Term conversion rider - Usually a part of term polies at no additional cost to the policyholder, you can use a term conversion rider to convert your term life insurance policy to a whole life insurance policy at the end of its term.
  • Accelerated death benefit rider - An 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 - A return of premium rider returns some of the premiums you pay if you outlive your life insurance policy's term.

Learn more about life insurance riders

How much term life insurance do I need?

Besides health and age, you need to take into account the amount of coverage a term life insurance policy provides to determine the final cost. You want to keep the policy affordable (there’s no point in having a policy that you won’t be able to pay for) while still making sure your family will be able to cover their 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.

➡ Learn more about how to decide how much life insurance you need.

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.

What are the pros & cons of a term life insurance policy?

Wondering if term life insurance is right for you? Consider the potential pros and cons:

Pros of term life insuranceCons of term life insurance
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 insurance vs. whole life insurance

Most insurance shoppers will need to decide between buying term life insurance or whole life insurance.

The main differences in term life insurance vs whole life insurance are:

  • A term life insurance policy expires when the term is up, while a permanent life insurance policy like whole life stays active for as long as you pay the premiums.
  • Whole life insurance has a cash value that works like a savings account and can grow or lose value over time.

Unlike whole life insurance and other forms of permanent life insurance, term policies don’t come with a tax-deferred savings component called the cash value. The cash value of a permanent life insurance policy accrues interest and can be used by the policyholder while they are still alive.

Because of the cash value and associated fees, whole life insurance is five to 15 times the cost of comparable coverage with term life insurance. For this reason, whole life isn't the right choice for most people. It can be useful for people with complex financial plans, but a majority of people will benefit more from a simple term life insurance policy that they can afford.

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What are 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 carrier 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. Use the table below to see Policygenius’ reviews for every life insurance company we work with.

INSURANCE COMPANYPOLICYGENIUS RATING (OUT OF 10)
Banner Life8.2
Lincoln Financial7
AIG8
Mutual of Omaha7
Prudential7.5
Protective7.7
Pacific Life8
Principal8.3
Transamerica7.1
SBLI7.4

You should also 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. Check out our ratings methodology to get a better sense of how we evaluate each life insurance company.

See our full page dedicated to the best life insurance companies and start your search with the best companies for your specific scenario.

Term life insurance companies and sample rates

Every life insurance company offers different premiums based on your individual profile, taking into account your health, family history, and lifestyle. But still, you can get a sense of what types of premiums each life insurance company could offer someone in good health with the graphs below — keeping in mind that based on your own circumstance, your premiums may look a little different.

Average premiums for women getting $500,000 in coverage

LIFE INSURANCE COMPANY253035404550556065
AIG$19.66$20.64$23.21$30.86$44.63$68.91$107.73$185.53$338.58
Banner Life$19.65$20.50$23.20$30.85$44.62$65.83$98.96$163.49$361.63
Lincoln Financial$26.25$28.87$32.81$38.06$48.26$70.52$100.63$172.77$332.89
Mutual of Omaha$22.58$23.01$26.01$34.61$49.67$74.60$113.73$206.61$370.02
Pacific Life$19.46$20.44$22.99$30.59$44.28$65.06$98.93$161.58$316.62
Principal$21.88$22.85$23.89$31.76$46.20$69.04$102.51$172.81$325.94
Protective$19.87$20.51$23.27$30.91$44.65$66.35$98.97$165.73$312.53
Prudential$28.00$31.06$31.94$41.13$54.25$81.38$116.81$209.13$381.06
SBLI$19.77$20.83$23.41$31.10$45.21$69.09$108.93$187.64N/A
Transamerica$19.78$21.93$30.10$40.42$56.76$82.99$129.86$233.92$404.63
AVERAGE$21.69$23.06$26.08$34.03$47.85$71.38$107.71$185.92$349.32

Average premiums for men getting $500,000 in coverage

LIFE INSURANCE COMPANY253035404550556065
AIG$25.22$25.94$27.23$36.46$57.88$92.08$144.88$257.65$473.00
Banner Life$24.95$25.80$27.08$37.94$57.87$87.38$140.14$233.27$466.46
Lincoln Financial$32.38$35.18$39.38$46.38$62.30$94.24$141.12$234.52$474.59
Mutual of Omaha$28.17$28.17$29.89$41.07$64.29$100.40$162.33$291.76$597.92
Pacific Life$24.77$25.62$26.90$36.24$57.24$86.35$138.76$230.56$467.05
Principal$27.56$27.69$27.83$37.63$59.76$90.91$146.13$247.19$485.62
Protective$24.96$25.81$27.09$36.43$58.14$87.76$141.09$235.15$466.47
Prudential$37.19$39.38$41.13$50.31$63.44$101.50$166.69$309.75$560.00
SBLI$25.12$25.97$27.98$38.09$58.46$100.00$174.94$310.28N/A
Transamerica$24.94$25.80$27.09$36.55$57.62$88.58$142.33$237.79$471.71
AVERAGE$27.53$28.54$30.16$39.71$59.70$92.92$149.84$258.79$495.87

Average premiums for women getting $750,000 in coverage

LIFE INSURANCE COMPANY253035404550556065
AIG$26.76$27.85$32.08$43.56$64.20$100.63$158.85$275.56$505.13
Banner Life$26.90$27.93$32.22$43.70$64.35$96.17$145.86$242.65$539.86
Lincoln Financial$35.44$38.39$45.28$53.16$68.45$101.85$147.00$255.22$495.40
Mutual of Omaha$31.17$31.82$36.33$49.24$71.81$109.22$167.92$307.23$552.33
Pacific Life$26.64$27.81$31.93$43.34$63.87$95.04$145.85$239.82$472.38
Principal$29.53$30.69$32.55$44.36$66.02$100.28$150.48$255.94$485.62
Protective$27.47$28.19$32.57$44.03$64.63$97.18$146.12$246.26$466.46
Prudential$38.28$40.91$44.19$57.97$77.66$118.34$171.50$309.97$567.87
SBLI$26.36$27.63$32.61$44.15$64.60$97.92$147.71$246.58N/A
Transamerica$28.38$30.96$43.86$59.34$86.43$123.20$193.50$349.59$605.66
AVERAGE$29.69$31.22$36.36$48.29$69.20$103.98$157.48$272.88$521.19

Average premiums for men getting $750,000 in coverage

LIFE INSURANCE COMPANY253035404550556065
AIG$35.09$36.18$38.11$51.96$84.08$135.38$214.58$383.74$706.76
Banner Life$34.85$36.13$38.04$54.33$84.22$128.48$207.62$347.33$697.11
Lincoln Financial$44.63$48.83$55.13$65.63$89.51$137.42$215.18$362.84$722.07
Mutual of Omaha$39.56$39.56$42.14$58.91$93.74$147.92$240.80$434.95$894.19
Pacific Life$34.61$35.88$37.80$51.81$83.31$126.98$205.59$343.29$698.02
Principal$38.06$38.26$38.46$53.16$86.36$133.09$215.91$367.50$725.16
Protective$35.11$36.38$38.30$52.30$84.87$129.31$209.29$350.38$697.37
Prudential$52.06$55.34$57.97$71.75$91.44$148.53$246.31$460.91$836.28
SBLI$35.18$36.45$38.64$52.49$85.19$141.40$226.24$389.78N/A
Transamerica$36.77$38.06$52.89$72.89$108.36$163.83$221.24$359.27$715.31
AVERAGE$38.59$40.11$43.75$58.52$89.11$139.23$220.28$380.00$743.59

Average premiums for women getting $1,000,000 in coverage

LIFE INSURANCE COMPANY253035404550556065
AIG$32.91$33.59$38.72$54.03$81.64$124.62$205.96$339.85$643.38
Banner Life$31.65$33.58$38.71$54.18$81.79$127.95$192.47$319.23$731.21
Lincoln Financial$35.35$35.35$41.39$57.14$83.48$126.18$197.14$328.48$609.00
Mutual of Omaha$38.92$38.92$44.08$62.14$90.51$139.54$218.65$386.35$731.21
Pacific Life$31.70$33.23$38.33$53.54$80.83$122.61$190.22$315.51$592.78
Principal$37.19$38.81$40.51$55.92$83.65$126.35$197.23$328.56$616.88
Protective$33.06$34.33$40.20$54.69$80.84$122.62$190.30$312.77$591.68
Prudential$44.19$50.31$55.56$67.81$87.94$143.06$219.19$383.69$684.69
SBLI$33.37$35.92$40.17$57.17$81.90$123.97$192.40$315.64N/A
Transamerica$33.54$36.12$49.02$73.10$107.50$157.38$241.66$422.26$787.76
AVERAGE$35.19$37.02$42.67$58.97$86.01$131.43$204.52$345.23$665.40

Average premiums for men getting $1,000,000 in coverage

LIFE INSURANCE COMPANY253035404550556065
AIG$43.17$44.19$46.76$65.23$108.15$166.89$272.65$464.00$910.69
Banner Life$42.40$44.12$48.21$75.03$106.78$165.75$269.25$455.17$896.76
Lincoln Financial$45.85$45.85$49.35$66.68$110.51$170.71$276.59$468.04$931.87
Mutual of Omaha$50.10$50.10$52.68$75.04$120.62$191.14$310.67$555.78$1,161.22
Pacific Life$41.90$43.60$46.48$64.76$106.84$165.06$268.74$453.47$899.24
Principal$47.25$48.14$49.05$67.64$110.60$170.89$277.84$481.25$946.14
Protective$43.94$44.62$47.69$65.78$106.79$165.76$268.75$449.88$896.77
Prudential$52.94$61.69$70.44$87.94$118.56$194.69$311.94$576.19$1,029.44
SBLI$45.24$46.91$49.43$66.60$108.25$176.67$286.26$501.38N/A
Transamerica$45.58$45.58$61.92$89.44$135.02$205.54$257.14$460.10$918.48
AVERAGE$45.84$47.48$52.20$72.41$113.21$177.31$279.98$486.53$954.51

Methodology: Sample monthly premium rates based on 20-year term life insurance policy for a non-smokers in Preferred health rating; quotes based on policies offered by Policygenius in 2020.

How do you buy a term life insurance policy?

Each life insurance company is different and the best way to get the right life insurance policy for you is to shop around with an independent broker like Policygenius. An agent can help you find a life insurance company that offers you the best premiums based on your individual circumstance, whether you have a risky hobby like scubadiving or an underlying health condition such as diabetes. You may even find that if you have a high-net worth or long term dependents, you're better suited for a whole life insurance policy.

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.

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Is term life insurance worth it?

If you have anyone who 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 is absolutely worth it. It should be your top insurance priority. And since term life insurance is cheaper and simpler than permanent policies, it’s easier to fit it into both your present-day budget and your long-term financial strategy.

About the author

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.

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.