Term Life Insurance | Bankrate

Term life insurance is a type of coverage that protects you financially for a specific number of years — often between 10 and 30, though some insurers offer 35- and 40-year terms. This can make it a good option for you if you need to protect your family while your children are young, or you are paying off significant debt such as a mortgage. It is the simplest type of life insurance, with a death benefit that pays out if the insured dies within the term. Bankrate’s insurance experts, which include licensed agents, explain how term life insurance works so you understand the pros and cons of this type of coverage before you purchase your policy.

What is term life insurance?

Term life insurance is a type of life insurance policy that provides coverage for a predetermined number of years. When purchasing a term life policy, you’ll select a term length, commonly between 10 and 30 years. In contrast, permanent life insurance provides coverage for the insured’s entire lifetime (with a maximum coverage age ranging from 95 to 121) and typically includes a cash value component that grows over time. Some key roles in life insurance policies are:

• Policy owner: The individual who owns and controls the policy; responsible for paying premiums and making any changes to the policy.
• Beneficiary: The person or persons designated to receive the death benefit if the insured passes away during the policy term.
• Insured: The person whose life is covered by the policy. If the insured dies within the term, the death benefit is paid to the beneficiaries.

Term life insurance policies typically offer term lengths ranging from 10 to 30 years, with a few carriers offering 35- and 40-year terms. The death benefit amount can vary widely based on your needs and the insurer’s offerings, often ranging from $50,000 to several million dollars.

How does term life insurance work?

To purchase term life insurance, you may want to obtain quotes from several providers for an apples-to-apples comparison of term length and coverage amounts. Once you’ve decided on a carrier, you will fill out an application and may be asked to take a brief medical exam (although no-medical-exam policies are available). This exam can take place at your home or office for your convenience.

During the application process, called underwriting, your insurer will look at a range of factors, including your health, age and gender, to help them determine how big a risk they are taking by insuring you. Your premium will be determined based on the level of that risk.

You will need to designate a beneficiary or beneficiaries for your policy. Most commonly, this will be a spouse or partner. If you die during the policy’s term, this beneficiary will receive the death benefit that you decide on when you are applying for the policy. Once the term of your policy is over, the policy expires and coverage ends — unless your policy is convertible or renewable and you choose to take advantage of this option. We’ll review these options below.

Pros and cons of term life insurance

Term life insurance offers specific benefits and drawbacks that can influence your decision when choosing a policy. Here are the key advantages and disadvantages of term life insurance to consider when searching for the best life insurance:

Types of term life insurance

When someone references “term life insurance,” they usually mean level term life insurance. However, there are several types of term life insurance, each designed to meet different needs. Generally, the more guarantees a policy offers, the higher the cost. Here’s a breakdown of the major types of term life insurance policies:

• Level term life insurance: Offers fixed premiums and a fixed death benefit for the policy duration, typically ranging from 10 to 30 years. This type provides stability, as both your premium and death benefit remain the same throughout the term.
• Decreasing term life insurance: Designed to cover debts that decrease over time, such as a mortgage. The death benefit decreases over the term of the policy, which makes this type of insurance relatively cheaper compared to level term life insurance.
• Renewable term life insurance: Allows you to renew your policy without needing a new medical exam, even if your health has changed. However, the premiums may increase with each renewal, reflecting your age and potential health risks at the time of renewal. A common version of this is annual renewable term (ART) insurance.
• Convertible term life insurance: Lets you convert your term policy into a permanent life insurance policy without needing a new medical exam. Although commonly called “convertible term life insurance” the ability to convert your policy is done through a rider. This rider is often included at no charge and can apply to both level term and annual renewable term policies. If you choose to convert, your premiums will likely increase since permanent life insurance costs more.
• Return of premium term life insurance: Includes a feature where, if you outlive the term of the policy, you get back the premiums you paid. This is achieved through a return of premium (ROP) rider. While this type of policy has higher premiums compared to regular term life insurance, it provides the added benefit of a refund if no death benefit is paid out.

Riders for term life insurance

A rider, also referred to as an endorsement, can provide extra features or benefits to your term policy. Riders are optional as they typically are an extra fee on top of your base premium. Here are a few common riders that are available for term life insurance:

• Term conversion rider: As previously mentioned, the ability to convert a term policy into a permanent policy without medical underwriting can be done through a rider—as long as it’s done before the conversion expiry date. These riders are often automatically included free of charge.
• Child term rider: This rider provides a small payout for all eligible children, including adopted and future children, for one flat cost. It covers children from as young as 14 days old until they reach a specified age, usually 18 or 25. Covered children can typically convert coverage to a permanent policy once they reach adulthood without needing a medical exam should they choose to do so.
• Return of premium rider: This rider ensures you receive back the money you paid into the policy if you don’t pass within the policy’s term. If the policyholder passes away before then, the money would be paid to the beneficiaries listed as normal.
• Waiver of premium rider: If you become critically ill, injured or disabled and cannot go to work, this rider will waive your premiums. Once you can return to work, you typically will need to restart payments. However, rider terms and qualifying scenarios can vary by insurer. Additionally, with this rider, you are typically only covered up to a certain age — usually the age of 65 in line with your retirement.
• Accelerated death benefit rider: This rider allows you to access a portion of your death benefit while you are still alive if you are diagnosed with a terminal illness. This can help cover medical expenses and other costs associated with a terminal illness.
• Accidental death benefit rider: This rider provides an additional payout if you pass away due to an accident. It increases the death benefit amount, offering extra financial protection for your beneficiaries in the event of an accidental death.
• Chronic illness rider: This rider allows you to access a portion of your death benefit while you are still alive if you experience a chronic illness.

How much does term life insurance cost?

Term life insurance premiums are primarily calculated based on the age, health and lifestyle of the applicants. Because of this, pricing for a term life insurance policy varies but is typically significantly cheaper for younger applicants. Age, gender and health are the main determinants of your premium, though you may still see some variance if you get quotes from multiple life insurers, as their underwriting practices can also vary.

Interestingly, many people overestimate the cost of term life insurance, which can prevent them from purchasing a policy. According to the 2024 LIMRA and Life Happens Barometer Study, about 72 percent of all respondents overestimated the true cost of a basic term life insurance policy. This misperception is particularly notable among younger generations: over half of Gen Z and Millennials combined overestimate the cost at more than three times its actual price. Additionally, over half (54 percent) of those surveyed said their life insurance cost estimate was based on “gut instinct” or a “wild guess.”

Understanding that term life insurance is often more affordable than many people think can encourage individuals to explore their options. Comparing life insurance companies can be helpful, especially if you have a pre-existing condition; it can also be beneficial to look at what types of policy riders are available, customer satisfaction and the insurer’s financial strength ratings. These considerations can help you find a policy that not only fits your budget but also helps to meet your coverage needs.

What real-life policyholders say about term life insurance costs

The cost of a life insurance policy is very personalized. Here’s a look at what actual life insurance customers are paying to give you a sense of term life insurance costs. You’ll notice that ages and health history are some key factors users point out.

*The quotes and citations included on this page have been verified by our editorial team and are accurate as of the posting date. Outlinked content may contain views and opinions that do not reflect the views and opinions of Bankrate.

Will I get my money back at the end of my term?

Unless you purchase a return-of-premium term life insurance policy, you will not get any money back at the end of the term. However, it’s important to note that the purpose of most insurance policies is to protect against what-ifs so the function of term life insurance is not atypical.

To help put this in perspective, it can be helpful to think of a term life insurance policy like a home or auto insurance policy: you only get money if you make a claim, and ideally, that doesn’t happen. Just as you don’t expect to get your auto insurance premiums back if you don’t have an accident, you shouldn’t expect to get your term life insurance premiums back if you outlive the policy term.

However, a return-of-premium rider can be added to your policy at an additional cost. This rider ensures you receive back the money you paid into the policy if you outlive the term. While this option increases the cost of your term life insurance, it provides the benefit of recouping a portion or all of your paid premiums.

How much term life insurance do I need?

Deciding how much term life insurance you need hinges on your financial goals and specific situation. For instance, a parent of a young child may want to purchase a life insurance policy with a 20-year term. A term of this length could make the most sense as it could ensure that their child will be financially secure if the parent passes away while the policy is in place.

On the other hand, a childless couple with 10 years left on their mortgage may only want a term life insurance policy to be active while they are still paying off their home.

Some other factors to consider when determining your life insurance coverage needs include:

• What is your yearly income, and what are your expenses? How much room do you have in your budget for life insurance?
• Are you the sole earner? If not, does your spouse or partner make enough to cover your family’s current and future expenses if you aren’t there?
• How many children do you have, and what are their ages? Do you plan to cover their higher education costs?
• Are you a caretaker for any family members with disabilities or special needs?
• Do you have a mortgage or other debts? If so, how many years will it take to be debt-free?
• How much financial help would your spouse need to keep your home afloat if you passed away?

It’s essential to consider your coverage needs to keep your life insurance premium within budget. In terms of how much life insurance you need, if you carry too much coverage, you could find it challenging to keep up with your life insurance bill, putting yourself at risk of policy cancellation. If you don’t have enough coverage, your beneficiaries may struggle financially after your death. A life insurance calculator can help guide you on your life insurance shopping journey, as can a consultation with a certified financial planner or licensed insurance agent.

Is term life insurance worth it?

Term life insurance is usually the most affordable way to cover temporary needs, such as paying off debt, funding your children’s college education or replacing your income if you were to pass before retirement. Whether it’s worth it depends on your individual needs, budget and financial goals. Term coverage is usually the best fit if you don’t need the cash value component or permanent coverage that whole or universal life insurance provides. It can be beneficial to consult with a financial advisor or licensed life insurance agent to determine the best type of life insurance for your situation.

Frequently asked questions

• What happens to term life insurance at the end of the term?
  

  At the end of a term life insurance policy’s term, most plans will expire; however, some term policies may have the option to continue past the level term period with either an annually increasing premium or a decreasing death benefit. Additionally, policyholders may have the option to convert the policy to a permanent plan if their coverage needs change. Some providers offer “return-of-premium” options which are more expensive but come with a guarantee that your premiums will be refunded if you outlive the term.

• Can I take a life insurance policy out on anyone?
  

  While it is possible to take out a life insurance policy on someone else, there are some stipulations. For instance, there must be insurable interest between the person purchasing the policy and the person being insured, such as business partners, spouses, parents or children. The person purchasing the policy must prove that the death of the insured person would have an adverse financial impact on them. Additionally, the insured person would also need to provide their consent, as you cannot take out a policy on someone without their knowledge or agreement.

• Who should I choose as my life insurance beneficiary?
  

  Selecting a life insurance beneficiary is a highly personal choice. You can even choose multiple beneficiaries with different proceed distributions. People commonly pick spouses, adult children, parents or other relatives, but you can select anyone you like. If you prefer, you can even choose organizations like your church or favorite charity. If your circumstances are more complex, for instance, you own a business, have a blended family or a large estate, creating a trust to name as the policy’s beneficiary may be in your best interest.

  Once you’ve made your decision, the beneficiary will be reflected on your life insurance policy. It’s a good idea to review your policy and beneficiary designations every year to ensure everything is aligned with your situation and goals as well as when you have a major life event. If not, you can update your policy to reflect a change in beneficiary.

• At what age should you stop term life insurance?
  

  Timing when to end term life insurance often aligns with personal financial milestones and the policy’s purpose. Many choose to maintain their policy until major obligations, like raising children or paying off a mortgage, are complete. By retirement, some individuals find they no longer need the coverage as dependents are self-sufficient, significant debts are cleared, and they have accumulated sufficient assets. Overall, the decision comes down to the individual’s larger financial picture and responsibilities.

  A popular strategy is to ladder term life insurance policies to meet different needs. For example, you could purchase a 20-year policy to protect your kids and a 30-year policy to protect a spouse. This may reduce the overall premium and better match the coverage to your needs.