Term life insurance: What it is, how it works, pros and cons
Term life insurance is the most popular type of life insurance because it’s straightforward, affordable, and lasts as long as you need. Premiums can be paid monthly or annually, and your beneficiaries get a tax-free lump sum of money after you die.
Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.
Katherine Murbach is an associate editor and a licensed life insurance expert at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.
Expert reviewed
Expert reviewed
This article has been reviewed by a licensed Policygenius expert to ensure that sources, statistics, and claims meet our standard for accurate and unbiased advice.
Certified Financial Planner™ & Advanced Planning Team Lead
Patrick Hanzel, CFP®, is a Certified Financial Planner™ and Advanced Planning Team Lead at Policygenius. His expertise has been featured at Lifehacker, Consumer Affairs, Authority Magazine, Thrive Global, and Fatherly.
Finding the right term coverage doesn’t have to be complicated. Our licensed agents are here to help you compare quotes, find savings, and choose the policy that works for you. Not sure how long your coverage should last or how much you need? We’ll help you customize a term policy that you can feel good about.
What is term life insurance?
Term is a type of life insurance that provides financial protection for your family over a fixed period, typically lasting 10 to 30 years. If you die during that period, your beneficiary will receive the death benefit — typically a lump sum of money — tax-free. Term life insurance is one of the most popular types of life insurance policies.
What does term life insurance cover?
Term life insurance pays out a death benefit if you die when your policy is active. It covers almost any type of death, including:
Illness: Term life insurance will remain active even if you develop a severe or chronic illness, or if you were to pass away from that illness.
Accident: Term life covers death by accident, too (for example, a car accident).
Who should consider term life insurance?
Anyone who has financial obligations or dependents whose livelihoods depend on their income should consider buying life insurance. People commonly buy life insurance for the following scenarios:
They just got married, or they share expenses with a partner. In this case, someone else is dependent on their income.
They had a child, or are planning to have children. Life insurance provides a financial safety net when raising children.
They recently bought a house and have a mortgage, or other significant debt. It’s important to think through any expenses your loved ones might be responsible for in your absence.
Pros
Term life insurance coverage is a good fit for many people seeking life insurance. Some features that make term beneficial are:
Affordable: Term life is cheaper than other kinds of life insurance, so you can get the coverage you need at a manageable price.
Straightforward: Term life policies don’t come with complex tax implications or restrictions.
Coverage only when you need it: Term life insurance provides financial protection when you need it most.
Cons
Everyone’s needs are different, so while term life insurance makes sense for many people, it can have limitations. Term life insurance:
Expires, so you have to buy a new policy if you still need insurance.
Has no cash value component, if you have a higher net worth and are seeking alternative investment strategies.
How does term life insurance work?
Term life insurance is active for a set number of years — also known as the term. During the term, you pay a monthly or annual premium to the insurance company, and in exchange the company pays a tax-free lump sum of money to your beneficiary if you die while the policy is active.
What happens when the term ends?
When the term ends, you have a few different options.
Let the policy expire. Many people choose coverage that will last until retirement, at which point they might not need life insurance at all.
Convert to a permanent policy. Many insurance companies allow you to convert your term policy to a permanent life insurance policy as you’re approaching the end of your term, if you still need a small amount of coverage.
Renew your policy at a higher premium. Many term policies renew at a higher price every year, so you can keep the same coverage if you’d like, and just pay more.
Apply for a new policy. If your term ends, you can always apply for another term policy if you need coverage for a few more years.
Do you get your money back at the end of a term policy?
No. Much like with other types of insurance, you pay your premium in exchange for coverage. For instance, an insurance company will not refund your car insurance premiums if you don’t get into an accident.
There are some exceptions with return-of-premium products, but due to their high cost, it’s typically not the most effective use of your money, since you can usually get higher returns elsewhere.
What is the difference between term life insurance and whole life insurance?
Term life insurance lasts for a set number of years, while whole life insurance is a permanent life insurance product that lasts the rest of your life.
Cost
Whole life insurance is five to 15 times more expensive than term, on average. The cost can make whole life prohibitive for some people to get the amount of coverage they need for their family.
Coverage
You can apply for the same coverage amounts with either policy. Minimum coverage amounts are typically around $100,000 for traditional term or whole life.
Does term life insurance have a cash value?
No, term life insurance does not have a cash value. By contrast, whole life insurance has a cash value that’s separate from the death benefit, which is part of the reason it’s so much more expensive.
The best term life insurance company for you will depend on your age, health, and gender, as well as your specific needs. Below are a few of our best companies for some common scenarios.
Methodology: How we chose the best term life insurance companies
We don't get paid for our company reviews and use an extensive rubric of criteria covering policy details, price, financial confidence, third-party ratings, and customer experience to assign unbiased ratings out of five stars. Any recommendations we make are based on internal and external expert opinions and data from our Policygenius Price Index, which uses real-time rate data from leading life insurance companies to determine pricing trends.
Our ratings and reviews can help point you to an insurer you can rely on for your family’s financial protection, but the best life insurance company for you is dependent on multiple factors. A licensed agent at Policygenius can work with you through the application process so you’re getting coverage from the best insurer for your circumstances at the most competitive price.
How we score: Policygenius’ ratings are determined by our editorial team. Our methodology takes multiple factors into account, including pricing, financial ratings, quality of customer service, and other product-specific features.
Banner Life has some of the longest term lengths — up to 40 years — and most competitive term life insurance rates available, even for people with a history of medical conditions.
Banner Life has a variety of term lengths to choose from and some of the most competitive rates on the market, for people both with and without pre-existing health conditions. It also has a no-medical-exam option for people who qualify.
How we score: Policygenius’ ratings are determined by our editorial team. Our methodology takes multiple factors into account, including pricing, financial ratings, quality of customer service, and other product-specific features.
Protective has some of the most affordable and comprehensive life insurance options available.
Much like Banner, Protective offers some of the most competitive rates across a variety of ages and health conditions. Even if you receive a high rate, you will likely pay less than you would with another insurer.
Best long term life insurance
Banner Life
Why we picked it
Banner offers a variety of term lengths, including longer terms that not every carrier offers, like 35 and 40 years.
How we score: Policygenius’ ratings are determined by our editorial team. Our methodology takes multiple factors into account, including pricing, financial ratings, quality of customer service, and other product-specific features.
With competitive pricing and a range of flexible term periods for its Select-a-Term product, AIG is a solid option for many life insurance shoppers, including families.
AIG offers affordable rates, as well as a highly customizable child rider. You can add anywhere between $500 and $25,000 of coverage in addition to your policy to cover any children. Your child can even convert the rider into a permanent policy of their own up until their 25th birthday.
AIG is also a good option if you’re applying while pregnant. It will consider your application at any stage of the pregnancy as long as there are no complications, while other insurance companies might postpone applications in the second or third trimester.
How we score: Policygenius’ ratings are determined by our editorial team. Our methodology takes multiple factors into account, including pricing, financial ratings, quality of customer service, and other product-specific features.
With nearly four million policyholders and 150 years to its name, Prudential offers competitive coverage options for seniors, as well as people with some of the most common medical conditions, including asthma, depression, and fibromyalgia.
Pros
High financial ratings
Competitive underwriting for a range of medical conditions
Prudential offers the most flexibility for people with health conditions associated with older age. People with osteoporosis or other aging-related health issues, for example, can qualify for a lower rate with Prudential than with other insurers. The company also offers more flexible income requirements than others, making it easier for retirees to get the amount of coverage they need.
How we score: Policygenius’ ratings are determined by our editorial team. Our methodology takes multiple factors into account, including pricing, financial ratings, quality of customer service, and other product-specific features.
Brighthouse Financial offers competitive rates, comprehensive coverage, and application decisions in as little as 24 hours, making it our overall best choice for people who want to get life insurance coverage without having to take the medical exam.
Brighthouse Financial offers competitive premiums and a seamless application process through a health interview as opposed to an in-person exam. You can apply for coverage up to $2 million through its no-med option.
Best instant approval term life insurance
Brighthouse Financial
Why we picked it
Brighthouse Financial is an A-rated company with an instant approval process that allows you to get a decision immediately following your health interview, should you qualify. It offers competitive pricing and up to $2 million in coverage without a medical exam.
Term life insurance is one of the most affordable coverage options available on the market. How much you'll pay will depend on multiple factors, including your age, gender, health, and lifestyle. The sample rates below will give you an estimate of term life costs for your particular situation.
Average term life insurance rates by age and gender
Age
Sex
Non-smoker
Smoker
25
Female
$21.06
$58.10
Male
$26.89
$73.44
35
Female
$25.43
$77.96
Male
$30.14
$93.23
45
Female
$47.71
$164.09
Male
$60.58
$223.83
55
Female
$108.44
$364.32
Male
$150.39
$526.72
Methodology: Average sample monthly estimated rates are for male and female smokers and non-smokers with a Preferred health rating buying a 20-year, $500,000 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, Protective, Prudential, 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 9/27/2022.
Average term life insurance rates by term length
Age
Sex
10-year term
15-year term
20-year term
30-year term
25
Female
$15.77
$18.62
$21.06
$30.94
Male
$19.77
$22.19
$26.89
$39.61
35
Female
$17.28
$20.87
$25.43
$38.94
Male
$20.47
$24.40
$30.14
$46.39
45
Female
$32.86
$38.43
$47.71
$79.79
Male
$37.91
$45.82
$60.58
$105.09
55
Female
$67.12
$83.66
$108.44
$211.16
Male
$86.83
$116.69
$150.39
$305.90
Methodology: Average sample monthly estimated rates are for male and female non-smokers with a Preferred health rating buying a 10-year,15-year, 20-year, or 30-year $500,000 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, Protective, Prudential, 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 9/27/2022.
Average term life insurance rates by death benefit payout
Age
Sex
$250,000 coverage amount
$500,000 coverage amount
$1,000,000 coverage amount
25
Female
$14.17
$21.06
$33.45
Male
$17.11
$26.89
$44.62
35
Female
$16.39
$25.43
$42.49
Male
$18.58
$30.14
$51.51
45
Female
$28.31
$47.71
$86.45
Male
$35.11
$60.58
$112.52
55
Female
$59.80
$108.44
$207.17
Male
$82.80
$150.39
$282.99
Methodology: Average sample monthly estimated rates are for male and female non-smokers with a Preferred health rating buying a 20-year $250,000, $500,000, or $1 million 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, Protective, Prudential, 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 9/27/2022.
How are term life insurance rates set?
Several factors determine the cost of term life insurance, including your age, gender, and health. The younger and healthier you are, in general, the lower your rates will be, since you’re less likely to die while the policy is active. Each insurance company assesses the risk of each individual person who applies, and each company has different guidelines regarding how they view risk, so your rates may be different with one insurer than another.
Types of term life insurance
Level term life insurance
Level term is the most common and popular kind of term life insurance. In many cases, when people say “term life insurance,” they’re referring to level term policies. The death benefit and premiums are set when the policy is purchased, and remain the same over the life of the policy.
Increasing term life insurance
An increasing term policy has a death benefit that increases in value at set intervals over the course of your coverage. For example, your benefit might increase by 5% every year. Rates are higher for this type of policy, and your premiums might fluctuate as opposed to level term, where they’re guaranteed to stay the same.
Decreasing term life insurance
Decreasing term life insurance is a policy with a set premium and a death benefit that gets smaller over the coverage period. Decreasing term life insurance is often used to protect a specific debt, like a mortgage; coverage lasts as long as the loan, and the benefit decreases as you pay it off.
Mortgage protection insurance
Mortgage protection insurance, or MPI, is a type of decreasing term insurance. Your term length is tied to the length of your loan, and the death benefit decreases as you pay off your mortgage. The beneficiary of MPI is your lender, not your family.
Return-of-premium term life insurance
Return-of-premium life insurance (ROP) — sometimes called return-of-premium term life insurance — is a type of term life insurance that refunds your payments if you outlive your coverage. Though the refunded premiums sound appealing, ROP policies are a lot more expensive than standard term life insurance.
Short term life insurance
A short term life insurance policy lasts a year or less and is designed to fill the gap while you wait to purchase long-term coverage.
Annual renewable life insurance
Annual renewable life insurance is a type of term life that lasts for one year. You can renew it each year, but you’ll pay more as you age.
Temporary life insurance
Temporary life insurance is a type of short term life insurance offered by some life insurance companies that offers you coverage while you wait for your policy to go into effect.
Family income life insurance
A family income life insurance policy is a type of decreasing term policy where the death benefit is paid in the form of monthly income, instead of a one-time payout. The value of the death benefit decreases the longer you live, which is the biggest drawback of this type of policy.
Convertible term life insurance
Convertible term life insurance refers to a term policy that can be converted into a whole life policy, or other permanent life insurance products, before the end of the term. Many insurance companies include this option in their term policies at no additional cost.
Other types of term life insurance
No-medical-exam term life insurance
No-medical-exam term insurance refers to a policy you can buy without taking the standard life insurance medical exam. Instead, you’ll complete a health interview over the phone or online.
Accelerated underwriting term life insurance
Accelerated underwriting refers to a term policy with a faster underwriting process, which is when the insurance company reviews your application to assess risk and assign your rates. Accelerated underwriting options typically don’t require a medical exam.
Instant approval term life insurance
Instant approval term life insurance is a form of no-medical-exam and accelerated underwriting. Instead of completing the in-person medical exam, you’ll complete a health interview over the phone and receive a decision from the insurer almost immediately, or within a few days.
Group term life insurance
Group term life insurance is one life insurance contract that covers a group of people affiliated with an organization. This type of term life is most often offered by employers, and it’s typically not transferable if you were to leave your job.
Supplemental life insurance
Supplemental life insurance can refer to any life insurance coverage that adds to what you currently have, but it’s most commonly used to refer to extra coverage you can purchase through a group or organization.
Accidental death and dismemberment insurance
Accidental death and dismemberment (also called AD&D) is a type of insurance that pays out for accidental death or accidental injury, as opposed to life insurance, which pays out for almost any cause of death.
Company-owned life insurance
Company-owned life insurance, or corporate-owned life insurance, refers to a policy an employer takes out on a highly valuable employee, like a founder. The business is the beneficiary of the policy and pays the premiums. If the employee dies, the company gets the death benefit.
Buying life insurance doesn’t have to be complicated. Two common ways to buy life insurance are from an independent broker that works with multiple companies, or directly from the insurance company (this is sometimes referred to as direct term insurance).
Compare quotes from multiple insurance companies
The best life insurance company for you will depend on your specific profile and unique needs. An independent broker like Policygenius can help you easily compare quotes from multiple insurance companies to find the best rate for you.
Determine how much life insurance you need
Your life insurance coverage should be customized to your family’s financial needs. A common rule of thumb is to apply for 10 to 15 times your annual income, but it’s important to take into account your assets, liabilities, and any dependents as well. For a more precise estimate, see our life insurance calculator.
Determine the term length you need
Ideally, your term length should cover you until retirement or until your major financial responsibilities are taken care of, like paying off a mortgage or raising children until they’re financially independent.
Consider additional term life insurance coverage riders
Riders are add-ons you can use to customize your policy. Not all riders are cost-efficient, but some can provide more comprehensive coverage for a specific need, like child riders or living benefits.
Ask about term conversion options
Many policies come with the option to convert to a permanent life insurance policy later on, in the event your needs change. You can ask your agent about this when you apply to make sure this is an option if you expect you may need permanent coverage in the future.
Is term life insurance worth it?
Term life insurance is worth it if you have — or are planning to have — financial responsibilities and people who are dependent on your income for their livelihood. It provides financial protection during your most critical income-earning years.
Frequently asked questions
What does term life insurance do?
Term policies last for a set period (usually 10 to 40 years) and pay out a death benefit to your beneficiaries if you die during that time.
What happens at the end of a term insurance policy?
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 won’t be refunded premiums you’ve already paid.
What does term life insurance cover?
A term life policy covers most causes of death, including illness or injury. The payout can be used to cover any expenses.
Which is best, term life insurance or whole life insurance?
Term life is right for most people. The added features in whole life aren’t worth the high cost in most cases.
Do you lose money with term life insurance?
You lose your premiums and your beneficiaries don’t get a death benefit if you outlive a term life policy. However, alternative policies that return your premiums aren’t worth the extra cost.
Amanda Shih is a licensed life, disability, and health insurance expert and a former editor at Policygenius, where she covered life insurance and disability insurance. Her expertise has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.
Katherine Murbach is an associate editor and a licensed life insurance expert at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.
Certified Financial Planner™ & Advanced Planning Team Lead
Patrick Hanzel, CFP®, is a Certified Financial Planner™ and Advanced Planning Team Lead at Policygenius. His expertise has been featured at Lifehacker, Consumer Affairs, Authority Magazine, Thrive Global, and Fatherly.
