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Term Life Insurance

Purchasing term life insurance is one of the most popular ways to create a financial safety net. Money experts like Dave Ramsey and Suze Orman prefer term life insurance to other types of insurance because it’s straightforward, affordable, and comprehensive.

For these reasons, term life insurance is the right financial product for a vast majority of life insurance shoppers.

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.

How term life insurance works

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

TERM LIFE FEATURES
Duration10-30 Years
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

Is it bad that my 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 the policy is still in force, your beneficiaries receive the death benefit. They can use this money for whatever they wish; the flexibility of the death benefit is one of the benefits of life insurance.

This is typically one tax-free lump sum payment or an annuity; however, it can also be paid out in installments, the balance of which can gain interest (although any gains are taxable).

There are some instances, such as those of fraud or suicide, during which your term life policy won’t pay out.

Understanding the cash value

Some types of permanent life insurance, like whole life insurance, have a cash-value component that can grow over time like an investment. However, term life insurance does not, which also helps to keep the cost low.

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.

AGE$250,000$500,000$750,000$1,000,000
25$15.90$25.12$34.97$42.23
35$17.04$27.26$38.18$47.37
45$32.71$58.22$84.75$108.15
55$75.25$140.95$208.85$257.14

Methodology: Sample based on 20-year term life insurance policy for a male in Preferred health rating.

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% a 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.

How much term life insurance do I need?

Besides health and age, you need to take into account the amount of coverage a term 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 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 we think you should have.

Pros & cons of term life insurance

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

BenefitsDrawbacks
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

➡ Learn more about if term life insurance is worth it.

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 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.

Because of the cash value and associated fees, whole life insurance is six to 10 times the cost of comparable coverage with term life. 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 policy that they can afford.

➡ Learn more about the differences between term life insurance versus whole life insurance.

Best insurance companies for term life insurance

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 5)
Banner Life✩✩✩✩✩
Lincoln Financial✩✩✩✩✩
AIG✩✩✩✩
Mutual of Omaha✩✩✩✩
Prudential✩✩✩✩
Protective✩✩✩✩
Pacific Life✩✩✩✩
MetLife (via Brighthouse)✩✩✩✩
Principal Financial✩✩✩✩
John Hancock✩✩✩✩
Transamerica✩✩✩✩
SBLI✩✩✩✩

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

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.