What is term life insurance?
Term life insurance is a policy that lasts a set term — usually between 10 and 30 years — and then it expires. In most term life insurance policies, both the premium payments and the death benefit stay the same for the entire duration of the policy. If you die while the policy is active, your beneficiaries usually receive the payout in a tax-free lump sum. Term life insurance, unlike permanent life insurance, doesn’t build cash value.
Term life is the most affordable way to provide financial protection for your loved ones in the event of your death. It’s easy to manage and provides temporary coverage during the period of your life when you have the biggest expenses, such as a mortgage to pay off, or when your children are still young. Term life also doesn’t have any complex tax implications or restrictions.
Key takeaways
Term life insurance is the cheapest type of life insurance. For example, a 20-year term life policy with a $500,000 payout costs, on average, $30 per month ($360 per year) for a 30-year-old. A whole life insurance policy, by contrast, can cost up to 17 times more.
Term life usually lasts between 10 and 30 years and in most cases the cost of your premiums stay the same throughout the term. The most popular term policies are 20-year term and 30-year term.
If you die while your policy is active, your beneficiaries will receive a tax-free lump sum payout. Term life policies don’t have cash value.
When a term life policy reaches the end of its term, it expires.
How does term life insurance work?
A term life insurance stays active for a set period of time, called the “term,” usually between 10 and 30 years.
During that term, you pay a monthly or annual premium to the insurance company. In exchange, the company pays a tax-free lump sum of money to your beneficiary if you die while the policy is active.
At the end of the term, the policy expires. If you still need coverage at the end of your policy, you can convert it into a permanent policy, renew your policy at a higher cost, or apply for a new policy.
Unlike whole life insurance, term life insurance doesn’t have cash value.
What are the different types of term life insurance policies?
There are many different types of term life policies. The main differences between them have to do with the length of the term and the coverage amount they offer.
Level term life insurance comes with both a level premium and a level death benefit, which means they stay the same throughout the duration of the policy. This is the most common and popular type of term life insurance.
Annual renewable life insurance is also known as yearly renewable term, and has a term of only one year. It can be renewed on a yearly basis, but premiums will increase every time you renew the policy.
Increasing term life insurance is a policy that comes with a death benefit that increases over time. Usually more complex and expensive than level term, it’s also sometimes called an incremental term life insurance plan.
Decreasing term life insurance comes with a payout that decreases over time. It’s commonly used to cover loans, like a mortgage. The most popular type of decreasing term policy is mortgage protection insurance (MPI).
Return-of-premium life insurance refunds all or part of your premium payments if you outlive the policy’s term. It’s usually two to three times more expensive than level term.
Convertible term life insuranceallows you to convert your policy to permanent life insurance at the end of your initial term. Many policies include this option by default.
Common life insurance term lengths
10-year term life insurance
15-year term life insurance
20-year term life insurance
25-year term life insurance
30-year term life insurance
40-year term life insurance
What are the main pros & cons of term life insurance?
Pros
Term life insurance is affordable. It’s cheaper than other kinds of life insurance, so you can get the coverage you need at a manageable price.
Term life is easy to manage and understand. Unlike permanent options like whole life insurance or universal life insurance, term life policies don’t have any complex tax implications or restrictions.
It provides coverage when you most need it. Term life offers financial protection during the period of your life when you have major financial obligations to meet, like paying a mortgage or funding your children’s education.
Cons
Term life insurance has an expiration date. At the end of the term, you’ll need to buy a new policy, renew it at a higher premium, or convert it into a permanent one if you still want insurance.
Term life doesn’t have a cash value savings component. Unlike permanent life policies, term life policies only offer a guaranteed lump-sum death benefit.
Who should consider a term life insurance policy?
Anyone looking for an affordable, easy way to offer their loved ones a financial safety net for a set period of time in the event of their death should consider buying term life insurance.
Newlyweds, married couples, and people who share expenses with a partner. Term life can provide income protection for your spouse in your absence.
Parents, guardians, and people planning on having children. Term life is an affordable way to provide a financial safety net when raising children.
Homeowners with a mortgage, or people with other significant debt. A term life policy can help your dependents cover any outstanding debts they might be responsible for in your absence.
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How much does term life insurance cost?
A 30-year-old non-smoking female in good health can expect to pay $22 per month ($264 per year) for a 20-year term life insurance policy with a $500,000 payout. A 30-year-old non-smoking male with a similar health profile can expect to pay $29 per month ($336 per year) for a policy with the same coverage.
Average monthly term life insurance rates
Age | Gender | $250,000 coverage amount | $500,000 coverage amount | $1 million coverage amount |
20 | Female | $15.01 | $22.65 | $33.63 |
Male | $19.18 | $30.20 | $47.51 | |
30 | Female | $15.17 | $22.99 | $36.89 |
Male | $18.19 | $29.32 | $48.88 | |
40 | Female | $21.66 | $35.27 | $60.64 |
Male | $25.38 | $42.95 | $75.24 | |
50 | Female | $43.92 | $78.29 | $139.47 |
Male | $56.69 | $102.49 | $188.26 | |
60 | Female | $107.84 | $194.16 | $354.62 |
Male | $149.38 | $268.09 | $500.15 |
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Methodology: Average monthly rates are calculated for male and female non-smokers in a Preferred health classification obtaining a 20-year $250,000, $500,000, or $1,000,000 term life insurance policy. Life insurance averages are based on a composite of policies offered by Policygenius from Brighthouse Financial, Corebridge Financial, Foresters Financial, Legal & General America, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica, and the Policygenius Life Insurance Price Index, which uses real-time data from leading life insurance companies to determine pricing trends. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 02/01/2024.
What factors affect the cost of term life insurance?
Term life insurance rates are determined by your age, gender, and health, as well as the coverage amount and the term length you choose.
Each insurance company has their own guidelines to assess risk and assign your rates.
Generally speaking, the younger you are and fewer health conditions you have, the cheaper your rates will be.
The higher your coverage amount and the longer the term, the more expensive your rates will be.
Is term life insurance better than whole life insurance?
Term life is a good fit if you’re looking for an affordable life insurance policy that only lasts for a set period of time. If you need permanent coverage or are considering life insurance as an investment alternative, whole life might be a better option for you.
The main differences between term life and whole life are:
The length of your coverage: Term life lasts for a set period of time and then expires. Whole life insurance is permanent, which means it never expires. If you have long-term financial obligations or coverage needs, like dependents who require lifelong care, whole life might be a better fit than term life.
The cash value: Whole life policies offer a separate cash value account, which you can borrow from while you’re still alive. Term life only offers a lump-sum payout called the death benefit.
The cost: Whole life is significantly more expensive than term life.
Comparing term life vs. whole life
Features | Term life insurance | Whole life insurance |
Permanent coverage | No — maximum of 30 to 40 years | Yes |
Cost* ($500,000 coverage amount) | $26/month for a 20-year term | $451/month |
Guaranteed death benefit payout | Yes | Yes |
Guaranteed cash value | No | Yes |
Premium cost stays fixed | Yes, in most cases | Yes, in most cases |
Pays annual dividends | No | Yes, in some cases |
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*Methodology: Average monthly term life insurance rate is for male and female non-smokers with a Preferred health rating obtaining a 20-year, $500,000 policy. Term life insurance averages are based on a composite of policies offered by Policygenius from Brighthouse Financial, Corebridge Financial, Foresters Financial, Legal & General America, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica, and the Policygenius Life Insurance Price Index, which uses real-time data from leading life insurance companies to determine pricing trends. Average monthly whole life insurance rate is calculated for non-smokers in a Preferred health classification, obtaining a whole life insurance policy paid up at age 100 from MassMutual. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 02/01/2024.
Read more about the differences between term life and whole life insurance
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What are the best term life insurance companies?
According to our analysis, Brighthouse Financial, Legal & General America (which also does business as Banner Life and William Penn), Pacific Life, Protective, Corebridge Financial, Transamerica, and Prudential are the best term life insurance companies on the market.
The best life insurance company for you will depend on a number of factors, including your age, overall health profile, financial needs, and the type of coverage you’re looking for.
To select our top picks, we used industry pricing data from Policygenius carrier partners and ratings from third parties like AM Best and J.D. Power. Our independent recommendations will help you get life insurance coverage with confidence.
Comparing the 7 best term life insurance companies of 2024
Company | Policygenius rating | Best for | AM Best rating | |
|---|---|---|---|---|
Brighthouse Financial | 5/5 ★ | Same-day coverage, no-medical-exam, young adults | A | |
4.9/5 ★ | Overall | A+ | ||
Pacific Life | 4.8/5 ★ | Customer satisfaction, people with pre-existing conditions | A+ | |
Protective | 4.8/5 ★ | Affordability | A+ | |
Corebridge Financial | 4.6/5 ★ | Families | A | |
Transamerica | 4.6/5 ★ | Military personnel | A | |
Prudential | 4.1/5 ★ | Seniors | A+ |
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How & where can you buy term life insurance?
You can buy life insurance from an independent broker that works with multiple companies, or directly from an individual insurance company. At Policygenius, our agents can help you compare quotes from different insurance companies to find the right coverage at a price that works for you.
Fill out an application. You’ll then have a phone call with an agent, and then, in most cases, take a medical exam.
Wait for the insurance company. The insurer will review your application and give you your final rate.
Sign and pay. Once you sign the policy paperwork and pay your first premium, you’re covered.
Frequently asked questions
What happens to term life insurance at the end of the term?
When a term life insurance policy reaches the end of its term, it expires. If the insured person dies after the term life policy’s expiration, their beneficiaries don’t receive a death benefit. If you still need coverage after your policy expires, you usually have three options: convert it into a permanent life policy, renew your policy at a higher premium, or apply for a new policy.
Do you get your money back at the end of a term life policy?
No. Much like with other types of insurance, you pay your premium in exchange for coverage. For instance, an insurance company won’t refund your car insurance premiums if you don’t get into an accident. The exception to this rule is return-of-premium term life insurance, a type of policy that refunds your payments if you outlive your coverage, but it’s significantly more expensive than traditional term life.
What happens if you outlive your term life insurance policy?
Once your policy expires, you’re no longer covered. If you outlive your term life insurance policy, your beneficiaries won’t receive the death benefit.
Can you cash in a term life insurance policy?
No, you can’t cash in a term life insurance policy because this type of policy doesn’t come with a cash value component.
Can seniors get term life insurance?
Yes, seniors can buy term life insurance. Some insurers will allow you to get life insurance up to age 80. In general, the older you are the more you’ll have to pay for life insurance, but the best life insurance companies for seniors offer affordable rates regardless of your age.
What is a waiver of premium?
A waiver of premium is a rider thatallows you to stop making premium payments if you become disabled and can’t work for six months or more. The waiver doesn’t cover disabilities caused bypre-existing conditions. It can be added to term life insurance policies for an additional cost.
