Term Life Insurance: Different Types, What It Is & How It Works

Life insurance is an essential financial tool, but choosing the right type can be confusing. Term life insurance is one of the most affordable and straightforward options. Unlike permanent policies, term life insurance provides coverage for a fixed period, offering financial protection for your loved ones in case of an untimely passing.

As someone with years of experience in the insurance industry, I’ve seen firsthand how the right term life insurance policy can make all the difference. In this guide, I’ll walk you through everything you need to know about term life insurance—what it is, how it works, and whether it’s the right choice for you.

Term life insurance is designed to offer financial protection for a limited period, making it an affordable and practical choice for individuals and families.

Many people choose term life insurance to:

• Cover major financial obligations (mortgage, car loans, student loans).
• Provide income replacement for dependents in case of an untimely passing.
• Secure children’s education costs or future expenses.

Example: If a policyholder takes out a 20-year term policy while raising young children, the death benefit can replace lost income and help their family maintain financial stability until the kids become financially independent.

Term life policies are simple, cost-effective, and ideal for temporary coverage needs—offering peace of mind at a fraction of the cost of permanent life insurance.

How Does Term Life Insurance Work?

Term life insurance is a straightforward and affordable way to secure financial protection for a specific period. It works like a contract between you and the insurance company—you agree to pay monthly or annual premiums, and in return, the insurer provides a death benefit to your beneficiaries if you pass away during the term.

Key Features of Term Life Insurance:

• Fixed Coverage Period: Policies last for a set term, typically 10, 20, or 30 years. Some companies offer terms ranging from 1 to 40 years, depending on age and policy selection.
• Guaranteed Death Benefit: If you pass away during the term, your beneficiaries receive a tax-free payout (the policy’s face value).
• No Cash Value: Unlike whole life insurance, term life policies do not build cash value—meaning they are purely for protection.
• Lower Cost: Since there is no investment component, term life is cheaper than permanent life insurance.
• Renewable or Convertible: Some policies allow renewal at the end of the term (at a higher premium) or conversion to a permanent policy without a medical exam.

Example Scenario:

• John, 35, buys a 20-year term policy worth $500,000.
• He pays $30 per month in premiums.
• If John passes away within 20 years, his family receives the $500,000 death benefit.
• If John outlives the policy, coverage ends, and he receives no payout (unless he renews or converts it).

What Does Term Life Insurance Cover?

Term life insurance provides financial protection for your loved ones by offering a tax-free payout (the death benefit) if you pass away during the policy term. This money can be used for anything your beneficiaries need—from covering outstanding debts to ensuring financial security.

Below are some of the most common expenses covered by a term life insurance policy:

1. Funeral and Burial Expenses

• The average funeral costs between $7,000 and $12,000 (National Funeral Directors Association).
• Term life insurance can cover funeral, cremation, or memorial service costs so your family isn’t burdened with unexpected expenses.
• Funds can also be used for burial plots, caskets, transportation, and other related costs.

2. Mortgage and Housing Costs

• Helps cover mortgage payments or pays off the remaining loan balance.
• Prevents foreclosure or forced sale of a home if the primary income earner passes away.
• Can cover rent or property taxes if you don’t own a home.

Example: If you owe $200,000 on a mortgage, a $250,000 policy ensures your family can stay in the home even if you’re gone.

3. Outstanding Debts (Loans & Credit Cards)

• Covers car loans, student loans, personal loans, or credit card debt.
• Protects cosigners (such as parents or spouses) from being responsible for unpaid balances.
• Ensures that debts don’t drain your family’s financial resources.

Example: If you cosigned a $20,000 auto loan for your child, term life insurance ensures they keep the car without financial stress.

4. Education and College Tuition

• Covers school tuition for children or dependents in case of an unexpected passing.
• Can be used for private school, college, or trade school expenses.
• Prevents kids from taking on excessive student loan debt.

5. Daily Living Expenses

• Ensures your spouse, children, or dependents can maintain their standard of living.
• Covers groceries, utility bills, childcare, healthcare, and other necessities.
• Helps replace lost income if you were the primary provider.

Example: If you earn $50,000 per year, a $500,000 policy could replace 10 years of lost income for your family.

6. Childcare and Family Support

• Helps pay for daycare, nannies, or babysitters if a surviving spouse needs to work.
• Covers costs for stay-at-home parents, ensuring they have financial security.
• Can be used to help aging parents or other dependents who relied on your support.

7. Business Protection (For Business Owners)

• If you own a business, a term life policy can cover outstanding business loans.
• Helps fund buy-sell agreements, ensuring a smooth transition if a business partner passes away.
• Can provide financial security for employees or business continuity planning.

Example: A $1 million policy ensures a family-owned business survives the loss of a key owner.

Is Term Life Insurance Right if I Only Want to Cover a Funeral?

No, term life insurance is not the best option if your only goal is to cover funeral costs. Instead, Final Expense Insurance (also known as Burial Insurance) is a more affordable and practical solution for this need.

Why Final Expense Insurance is a Better Choice

• Lower Coverage Amounts – Policies typically range from $10,000 to $25,000, just enough to cover funeral and burial expenses.
• No Medical Exam Required – Many final expense policies offer guaranteed acceptance or simplified underwriting, making them easier to qualify for.
• More Affordable Premiums – Since these policies offer smaller coverage amounts, they cost less than term life insurance.
• Lifetime Coverage – Unlike term life insurance, final expense insurance doesn’t expire as long as you pay the premiums.

Example: The average funeral costs between $7,000 and $12,000 (National Funeral Directors Association). A $15,000 final expense policy would provide just enough to cover funeral and burial costs without overpaying for unnecessary coverage.

Why Term Life Insurance May Not Be Ideal for Funeral Costs

• Higher Coverage Than Needed – Most term policies start at $100,000 or more, which is far more than the typical cost of a funeral.
• Requires a Medical Exam – To qualify for affordable rates, you may need to take a health exam.
• Limited Coverage Period – If you outlive your term policy, your family won’t receive a payout for funeral expenses.

How Much Does Term Life Insurance Cost?

Term life insurance has different costs depending on factors like:

• How long your term is; longer term lengths have higher premiums
• The coverage amount; the higher the amount, the higher your premiums
• Your age and gender; older individuals will pay more for term policies because of their increased health risks
• Your job; dangerous jobs come with higher risks and therefore, higher costs.

20-Year Term Life Policy: Average Monthly Premiums

Below is a table indicating the average monthly premiums for a 20 year policy with $500,000 coverage amounts and $1 million coverage amounts based on different ages and genders:

30-Year Term Life Policy: Average Monthly Premiums

The average monthly premiums for 30-year term life insurance policies are slightly higher because they cover a longer period of time.

Below is a table indicating the average monthly premiums for a 30 year policy with $500,000 coverage amounts and $1 million coverage amounts based on different ages and genders:

Types of Term Life Insurance

Not all term life insurance policies are the same. Some policies keep the same coverage for a fixed period, while others adjust over time based on your needs. Choosing the right one depends on your financial goals, budget, and how long you need coverage.

Here’s a breakdown of the most common types of term life insurance:

1. Level-Term Life Insurance

level term life insurance is a basic form of life insurance. If you talk to an insurance agent about a term insurance policy, they are likely talking about a level term policy.

Level means the same, so your premiums and your coverage amount remain the same throughout your term. if you outlive the policy, it expires and you no longer have to make payments but you will have to take out a new policy if you want continual coverage. If you pass away during the term, your beneficiaries receive the death benefit.

How It Works:

• You choose a policy length (usually 10, 20, or 30 years).
• Your monthly premium stays the same throughout the policy.
• If you pass away during the term, your beneficiaries receive the full death benefit.
• If you outlive the term, the policy expires unless renewed.

Key Features:

• Fixed Premiums – You pay the same amount each month.
• Guaranteed Death Benefit – The payout amount doesn’t change.
• No Cash Value – Unlike whole life insurance, this policy doesn’t accumulate savings.

Best for:

• Families looking for a predictable and budget-friendly life insurance option.
• Anyone who wants a fixed premium with fixed coverage for a set term.

Pros:

• Your premiums remain the same, so you can budget accordingly.
• More affordable than permanent life insurance.
• Ideal for long-term financial security.

Cons:

• The coverage expires when the term ends.
• No investment or cash value component.

2. Yearly Renewable Term (YRT) Policy

If you don’t want your policy to expire should you outlive it, you can choose a renewable term policy. This is one of the most popular term policies for 20-year terms.

As the name suggests, it gives you an opportunity to renew your policy for additional terms until such time as you meet a specific age or health factor that serves as grounds for cancellation.

Some of these policies are also convertible which means once a term expires, you can opt to convert to a permanent plan.

Premiums for these are typically based on your age and health when you first take out the policy and they remain level (meaning, the same) until you renew, at which point your premiums get changed based on your health and age once more, before continuing to remain level for the duration of your term.

For example:

Carol takes out a 20-year renewable policy at age 38. She is healthy with only a mild case of asthma. Her premiums are $41 per month. They remain that way for 20 years. When she reaches 58, she decides to renew her term coverage for another 15 years. This time she has developed diabetes, dealt with clinical depression, and still has asthma. Combined with her older age, her monthly premiums are now $88, but they will remain that way for the next 15 years.

How It Works:

• The policy is renewed each year without a new medical exam.
• Premiums increase annually based on age and health.
• Some policies allow you to convert to a permanent policy later.

Key Features:

• Annual Renewals – Extends coverage year-by-year.
• No New Medical Exams – Easy to renew even if your health changes.
• Higher Cost Over Time – Premiums start low but increase each year.

Pros:

• You can continually renew until such time as a policy gets rejected for health or age factors.
• With some policies you can convert to a permanent policy without having to go through the process of providing evidence for a brand new insurance policy.

Cons:

• Most insurance companies won’t sell this option to you if the term expires after your 80th birthday.
• Premiums increase yearly, becoming expensive over time.

3. Decreasing Term Policy

A decreasing policy is a type of renewable term life insurance policy where your coverage amount decreases throughout the term. This is the best policy for people who have a specific cost they want to cover for their loved ones in the event that they pass away unexpectedly.

People who, for example, have a business loan or a mortgage might take out a term policy to cover the length of time left on that loan but then choose a decreasing term policy so that the available amount remains consistent with the decreasing balance of the mortgage or business loan.

How It Works:

• The death benefit decreases over time, usually matching loan payments.
• Premiums remain the same throughout the term.
• If the policyholder dies, the remaining benefit helps cover outstanding debt.

Key Features:

• Coverage Shrinks Over Time – Matches debt payoff schedules.
• Fixed Premiums – No cost increases.
• Typically Cheaper – More affordable than level-term policies.

Best for:

• Homeowners looking to cover a mortgage or business loan.
• Those who want coverage that declines over time as debts decrease.

Pros:

• This is the best way to ensure you have enough money to cover specific costs should you pass away unexpectedly, like a decreasing mortgage.
• This is a viable option for small business protection or personal asset protection.

Cons:

• The coverage decreases with time, but the premiums don’t.
• Because coverage changes, the premiums are less, on average, than other term policies.

4. Return Of Premium (ROP) Term Life Insurance

Some life insurance policies provide a return of premium option. These are typically much higher in terms of the monthly premium and you have to keep the policy for the entire term or you forfeit that benefit. However, if you outlive it, the insurance company will return the premiums you paid.

This is another great option for people who want to cover a specific financial asset like a mortgage or business loan, car loan or credit card debt, but if they manage to pay it off during the time frame and out live their policy, can get their premiums back.

How It Works:

• You pay higher premiums than a regular term life policy.
• If you outlive the policy, the insurance company refunds 100% of the premiums you paid.
• If you pass away during the term, your beneficiaries receive the death benefit, just like with regular term life insurance.
• You must complete the full term to get your premiums back—canceling early forfeits the refund.

Key Features:

• Premium Refund – If you outlive your policy, you get all your money back.
• Higher Monthly Cost – Premiums are more expensive than standard term policies.
• No Interest or Investment Growth – Unlike whole life insurance, you don’t earn interest on the premiums refunded.

Best for:

• People who want term life insurance but don’t want to “lose” their premiums if they outlive their policy.
• Individuals looking for a forced savings plan with a life insurance safety net.

Pros:

• You get your premiums returned at the end of your term.
• Provides a financial safety net while acting as a form of forced savings.

Cons:

• The premiums you pay are higher than other term policies because there is the payback option.
• You must stick with the entire term, without missing payments, or you forfeit the return.

5. Group Life Insurance

As the name suggests, group life insurance is a form of temporary insurance for several people within the same group.

You usually only get this as a benefit to your employment. employers might provide base term life insurance at no additional cost for you but allow you. 26% of Americans think the base coverage provided by their group life insurance is adequate.

How It Works:

• Employers typically provide basic term life coverage at little to no cost.
• Coverage amounts are often limited, usually one to two times your salary.
• Some employers allow you to buy additional supplemental coverage at a discounted rate.
• If you leave the company, you lose the coverage unless it’s portable.

Key Features:

• Employer-Sponsored – Offered as a job benefit, often at little to no cost.
• Limited Coverage – Usually covers a fraction of what you’d get with an individual policy.
• Not Portable – If you change jobs, you typically lose the policy.

Best for:

• Employees looking for affordable life insurance through their workplace.
• Individuals who don’t qualify for individual term life insurance due to health issues.

Pros:

• In some cases you are allowed to purchase supplemental coverage in addition to what your company provides.
• The cost is relatively inexpensive compared to individual plans because there are so many people involved.

Cons:

• If you leave the company you no longer have access to that coverage and you’ll have to apply all over again.
• You can’t buy it yourself, it has to come through an employer.

What Are the Pros & Cons of Term Life Insurance?

Term life insurance is a great option for many people, but it’s not the right fit for everyone. While it provides affordable, straightforward coverage, it also comes with temporary limitations.

A 2023 LIMRA study found that 44% of U.S. families would face financial hardship within six months if they lost one income, and 25% would struggle within just one month. This highlights why having the right life insurance coverage is critical.

Let’s break down the advantages and disadvantages of term life insurance so you can decide if it’s the best fit for your needs.

Benefits of Term Life Insurance

1. Simple & Easy to Manage

• No investment components or cash value accounts to worry about.
• You pay your premiums, and if you pass away within the term, your beneficiaries receive a tax-free payout.

2. Affordable Compared to Whole Life Insurance

• Term policies are 3 to 5 times cheaper than whole life insurance.
• Half of Americans overestimate life insurance costs, often thinking it’s much more expensive than it actually is.

Example: A healthy 30-year-old can get a $500,000 term policy for around $25/month, whereas a whole life policy for the same amount could cost $250/month or more.

3. Provides More Coverage for Less Money

• Term policies allow you to buy higher coverage amounts, sometimes up to $10 million or more.
• Ideal for covering large financial responsibilities, such as:
  • Mortgages
  • Student loans
  • Car loans
  • Business loans

4. Tax-Free Death Benefit

• In most cases, the IRS does not tax the death benefit payout.
• Some policies even offer return of premium options, where your premiums are refunded if you outlive the policy.

5. No Cancellation Penalties

• Unlike whole life insurance, most term policies allow cancellation at any time without penalties.

Drawbacks of Term Life Insurance

1. No Cash Value or Investment Component

• Unlike whole life insurance, term policies do not build cash value.
• You can’t borrow against the policy or withdraw funds from it.

Example: With a whole life policy, you can take out a loan against the cash value, but term life insurance doesn’t have this option.

2. Coverage is Temporary

• Once the term expires, coverage ends—unless you renew or convert it.
• This makes it less ideal for:
  • People looking for lifelong coverage.
  • Parents of special needs children who need permanent protection.
  • Those who only want life insurance to cover funeral expenses (final expense insurance is better for that).

3. Need to Buy a New Policy After the Term Ends

• Premiums increase if you renew at an older age.
• Some policies allow conversion to permanent insurance, but only within a specific timeframe.

Example: A 30-year-old buying a 20-year term may pay $20/month, but renewing at age 50 could cost $100+/month for the same coverage.

4. Upper Age Limit

• Most insurers won’t sell a new term policy after age 75-80.
• If you still need coverage after that, you may have to buy:
  • A guaranteed issue policy (expensive).
  • A whole life policy (much higher premiums).

Term Life Insurance vs. Permanent Life Insurance

When choosing life insurance, the two main options are term life insurance and permanent life insurance (which includes whole life and universal life policies).

A 2023 LIMRA study found that 48% of U.S. households have a term life insurance policy, making it the most popular option. However, permanent life insurance remains a valuable choice for those seeking lifelong coverage and investment benefits.

Let’s break down the differences, pros, and cons of each to help you determine the right choice.

1. Cost of Premiums

• Term Life Insurance:
  • Much cheaper than permanent life insurance.
  • Premiums are fixed for the term length (10, 20, or 30 years).
  • A $500,000 policy for a healthy 30-year-old costs around $25/month.
•  Permanent Life Insurance:
  • Significantly more expensive (often 5 to 15 times the cost of term policies).
  • Premiums remain level for life, ensuring lifelong coverage.
  • A $500,000 whole life policy for a 30-year-old may cost $250/month or more.

Example: If you’re 35 and buy a $500,000 term policy for 20 years, you’ll likely pay around $30/month. A similar whole life policy could cost $300+/month but lasts your entire life.

2. Availability of Coverage

• Term Life Insurance:
  • Available in set durations (usually 10 to 40 years).
  • If you outlive the policy, it expires with no payout.
  • Coverage is only available up to a certain age (often 75-80 years old).
• Permanent Life Insurance:
  • Covers you for life as long as premiums are paid.
  • Suitable for people who want long-term security.
  • Can be used for estate planning, inheritance, or final expenses.

3. Investment & Cash Value Options

• Term Life Insurance:
  • No cash value or investment component.
  • Strictly a death benefit—if you outlive the term, there’s no payout.
• Permanent Life Insurance:
  • Includes a cash value component that grows over time.
  • Can be used for loans, withdrawals, or retirement income.
  • Some policies allow dividends or interest earnings.

Example: With a whole life policy, part of your premium goes into a cash value account, which grows at a fixed rate. If you cancel the policy, you may be able to withdraw the accumulated cash value.

4. Who It’s Best For

• Term Life Insurance is ideal for:
  • Young families needing affordable coverage.
  • People with temporary financial obligations (e.g., mortgage, loans, children’s education).
  • Those who only want life insurance for a set period.
• Permanent Life Insurance is best for:
  • People who want lifetime coverage with guaranteed benefits.
  • Those interested in building cash value as a savings tool.
  • Individuals with estate planning needs (e.g., leaving an inheritance).

Term Life Insurance vs. Whole Life Insurance: Which Is Better?

Term Life Insurance vs. Convertible Term Life Insurance

Convertible term life insurance is a slightly more expensive version of life insurance because it gives you the option of converting your expiring term policy into something else.

1. Cost of premiums

Convertible term policies are more expensive because you can change your policy into a permanent policy at the expiration without reviewing your health qualifications. Avoiding the medical exam and any health findings at the time of conversion is a cost built into the convertible premiums.

• Term Life Insurance:
  • Most affordable life insurance option.
  • Premiums are fixed for the term (10-40 years).
  • A $500,000 policy for a 30-year-old might cost $25/month.
• Convertible Term Life Insurance:
  • Slightly more expensive than regular term insurance.
  • Includes a built-in option to convert to whole life or universal life insurance later.
  • Premiums increase significantly upon conversion since permanent life insurance costs more.

Example: If you’re 35 and buy a 20-year term policy, you might pay $30/month. A convertible term policy might cost $35/month, but you get the option to switch to permanent life later without a medical exam.

2. Availability of Coverage

With term life insurance you can choose term lengths ranging between 1 and 30 years on average.

By comparison, convertible life insurance has some limits on available coverage based on your age when the policy is started.

• Term Life Insurance:
  • Can choose terms between 1 and 40 years.
  • If you outlive the term, the policy expires with no payout.
  • No ability to convert into another policy.
• Convertible Term Life Insurance:
• Offers set term lengths but allows conversion before expiration.
• Maximum term length varies based on your age:
  • Up to age 49: 30-year convertible term available.
  • Up to age 54: 20-year term max.
  • Up to age 57: 15-year term max.
  • Up to age 62: 10-year term max.
• Conversion must be done before the term ends.

3. Investment value

Convertible term policies will offer an investment value like a cash value account once they convert to a permanent policy, whereas term policies never do.

• Term Life Insurance:
  • No cash value or investment component.
  • Strictly a death benefit—if you outlive the term, there’s no payout.
• Convertible Term Life Insurance:
  • When converted, it gains a cash value component (if switched to whole life or universal life).
  • Can be used for loans, withdrawals, or estate planning after conversion.
  • Offers long-term financial benefits but requires higher premiums.

Who It’s Best For

• Term Life Insurance is ideal for:
  • People needing affordable, temporary coverage (e.g., mortgage, student loans).
  • Young families wanting high coverage for a lower cost.
  • Those who don’t plan on needing permanent life insurance.
• Convertible Term Life Insurance is best for:
  • People who want the option to switch to permanent coverage later.
  • Individuals expecting long-term financial responsibilities (e.g., inheritance, estate planning).
  • Those who may develop health issues and want to lock in future insurability.

Convertible term policies are best for people who A) have financial obligations in the present which they want to cover and B) want to change their policy after financial obligations have been met with a permanent plan.

For example:

Anthony has a mortgage, student loans, and a car loan. He picks a convertible term policy so that the term is $1,000,000, enough to cover all of that.

When it expires, he converts it into a permanent policy for $500,000, enough to give each of his kids a small inheritance, while his wife keeps the other assets (now paid off), once he passes away.

Now take the same example but slightly modified:

Anthony has a mortgage, student loans, and a car loan. He picks a 20-year term policy so that the term is $1,000,000, enough to cover all of that.

When it expires, he does not have any additional expenses, nor does he have children for whom he is providing an inheritance. His spouse will keep the house, other benefits from his successful business, and assets.

Term Life Insurance vs. Convertible Term Life Insurance: Which Is Better?

If you plan on having a different policy for other needs after financial obligations are paid, convertible term is better.

Quick Summary:

• Choose term life if you want affordable, temporary coverage with no conversion options.
• Choose convertible term life if you want the flexibility to switch to permanent life insurance later.

What Happens When Term Life Insurance Expires?

Term life insurance provides financial protection for a set number of years—typically 10, 20, or 30 years. But what happens when the term ends?

When a term life insurance policy expires, the coverage ends, and your beneficiaries will no longer receive a payout. You won’t get a refund unless you purchased a Return of Premium (ROP) policy. Some policies offer renewal or conversion options, but premiums may increase.

Let’s explore what happens next and what options you may have.

Do You Get Your Money Back at the End of a Term Life Policy?

Short Answer: No, you don’t get your premiums back unless you purchased a Return of Premium (ROP) term policy.

• Standard Term Life Insurance: If you outlive the term, the policy expires with no payout—just like car insurance that you never use.
• Return of Premium (ROP) Term Life Insurance: If you outlive the term, you get back all the premiums you paid, but ROP policies cost 30-50% more than standard term life insurance.

Example:

• Standard 20-year policy ($500,000 coverage): $30/month → No refund after 20 years.
• Return of Premium 20-year policy: $50/month → Receive all premiums back if you outlive the policy.

Is ROP Worth It?

• If you want forced savings with a guaranteed payout, an ROP policy could be worth it.
• But investing separately in a high-yield account may be a better way to build wealth.

What Happens if You Outlive Your Term Life Insurance Policy?

If you outlive your policy, you have several options depending on your coverage:

1. Renew Your Policy (If Available)

• Some term policies allow yearly renewal after expiration, but premiums increase significantly.
• You don’t need a new medical exam, but your rates are based on your current age and health.
• Not all term policies offer renewal. Check with your insurer before your policy ends.

Example:

• At 30 years old, you paid $25/month for a 20-year policy.
• At 50 years old, renewing may cost $150-$200/month due to age-related risk.

2. Convert to a Permanent Life Insurance Policy

• If you have a convertible term policy, you can switch to whole or universal life insurance without a new medical exam.
• This ensures lifelong coverage but comes with higher premiums.
• Converting is only allowed before the term ends.

Example:

• A 20-year term policy ($500,000 coverage) at $30/month can convert into a whole life policy for about $200-$300/month.

3. Buy a New Life Insurance Policy

• If your policy doesn’t allow renewal or conversion, you’ll need to reapply for a new policy.
• This requires a new medical exam, and rates will be based on your current health and age.
• If you have health issues, you may face higher premiums or denied coverage.

4. Let Your Policy Expire (No Coverage Left)

• If you take no action, your policy simply ends, and you lose coverage.
• Your family will not receive any financial protection if something happens to you.

Final Thoughts: What Should You Do Before Your Term Life Policy Expires?

• Check your options early – Review your policy at least a year before expiration.
• Consider conversion – If you still need life insurance but want lifelong coverage, see if conversion is possible.
• Shop for new policies – Compare term and whole life insurance options before your term ends.
• Talk to an agent – A licensed insurance agent can help evaluate your best options based on your financial situation.

Quick Summary: If you outlive your term life policy, you don’t get a refund unless you bought a Return of Premium policy. You may be able to renew, convert, or buy a new policy, but costs will increase. Planning before your term expires ensures you’re covered without financial surprises.

Who Should Consider Term Life Insurance?

Term life insurance is ideal for people who need financial protection for a specific period—such as covering a mortgage, raising children, or protecting dependents until they become self-sufficient. It’s an affordable option compared to whole life insurance but expires at the end of the term.

Here’s a closer look at who should consider term life insurance.

1. Young Adults with Major Financial Obligations

If you have large financial responsibilities—such as a mortgage, student loans, or car payments—term life insurance can ensure those debts don’t burden your loved ones if something happens to you.

Best for:

• Young homeowners
• Recent graduates with private student loans (cosigned)
• Individuals financing vehicles or personal loans

Example Scenario:

John (Age 30) buys a 20-year, $500,000 term policy for $25/month.

• Covers his mortgage balance and car loan.
• If he passes away during the term, his wife gets $500,000 to pay off debts.
• If he outlives the policy, it expires—he can either renew, convert, or get a new policy.

2. Parents Raising Young Children

Term life insurance is a great way to replace lost income and ensure children are financially secure until adulthood.

Best for:

• Parents with young children
• Primary earners with dependents
• Families that can’t afford whole life insurance

Example Scenario:

Sarah (Age 35) buys a 20-year, $750,000 term policy for $30/month.

• Ensures her children (ages 3 & 5) are financially secure if she dies unexpectedly.
• The death benefit can cover education, childcare, and living expenses.
• After 20 years, her children are independent, so she doesn’t need life insurance anymore.

3. Business Owners or People with Financial Dependents

If you own a business, cosign loans, or financially support family members, term life insurance can protect those who rely on your income.

Best for:

• Business owners with outstanding loans or partners
• Cosigners on loans (parent-student loans, business financing)
• People financially supporting elderly parents

Example Scenario:

Mark (Age 40) owns a business and takes out a 15-year, $1M term policy.

• Protects his business partner and employees in case of his death.
• Ensures his family doesn’t struggle with outstanding business loans.
• After 15 years, if he no longer has major debts, he lets the policy expire.

4. People Who Want Affordable Coverage for a Set Time

Unlike whole life insurance, term life insurance is cheaper and simpler, making it an attractive choice for budget-conscious individuals.

Best for:

• Those who want maximum coverage at a lower cost
• People who only need coverage during working years
• Those who prioritize affordability over lifelong coverage

Example:

• A 40-year-old buys a $500,000 term policy for $50/month.
• The same amount in whole life insurance would cost $300+/month.

Can Seniors Get Term Life Insurance?

Yes, seniors can get term life insurance. In fact, at a certain point given your age and health, you might not be eligible for permanent policies in which case you’ll have no recourse but to pick a term policy.

As a senior your prices will go up for monthly premiums depending on the coverage and the length of your term. The table below shows different average premiums for seniors:

When comparing two adults of the same age with the same health problems, the average premium for a male term policy of 15 years with $500,000 in coverage is well over $1,000 per month but comparatively for women is only over $700 per month.

How Much Term Life Coverage Do You Need?

The right amount of term life insurance depends on your financial obligations, future income needs, and family goals. A good rule of thumb is to get 10-15x your annual income to ensure your loved ones are financially secure.

Your coverage amount should include:

• Outstanding debts (mortgage, student loans, credit card debt).
• Future expenses (college tuition, daily living costs).
• Income replacement (cover lost wages if you pass away).

The median coverage amount for term life policies is $110,000, but many financial experts recommend $500,000 to $1 million, depending on your needs.

How Long Can Term Life Insurance Policies Be?

Term life insurance policies typically range from 1 year to 40 years, depending on your insurer and age at the time of purchase. The length of your term should match your financial responsibilities.

Common Term Lengths & When to Choose Them:

1-Year Term

• Short-term coverage for unique situations (e.g., filling gaps before switching jobs).
• Usually renewable, but premiums increase each year.
• Best for: People with temporary financial needs.

10-Year Term Life Insurance

• Covers short-term financial obligations, such as personal loans or the remaining years on a mortgage.
• Lower cost than longer terms.
• Best for: Older individuals who only need short-term protection.

15-Year Term Life Insurance

• Great for parents with young children who need coverage until kids are financially independent.
• Covers mid-length financial obligations, such as car loans or credit card debt.
• Best for: Young families, business owners with medium-term loans.

20-Year Term Life Insurance

• Covers long-term debts like mortgages (most mortgages last 15-30 years).
• Ensures income replacement for your family in case of an untimely death.
• Best for: Homeowners, parents raising teenagers.

30-Year Term Life Insurance

• Ideal for covering an entire mortgage, student loans, or raising a family.
• Locks in lower rates while you’re younger.
• Best for: Young adults, new homeowners.

Picking a Term Life Insurance Length

Choosing the right term length depends on your financial responsibilities and future income needs. Here are key factors to consider:

• How long will your debts last?
  • Match your policy term to your mortgage, student loans, or business loans.
• How long do your dependents need financial support?
  • If you have young kids, a 20-30 year policy ensures coverage until they become financially independent.
• How close are you to retirement?
  • If you’ll retire in 10-15 years, a shorter term may be enough.
• What’s your budget?
  • Shorter terms (10-15 years) cost less per month but provide coverage for a limited time.
  • Longer terms (20-30 years) offer stability but cost more upfront.

Can You Change Your Coverage Amount?

Yes, but most term life insurance policies require reapplying if you want to increase coverage. This can lead to higher rates due to age and health changes.

Options for Adjusting Coverage:

• Reapply for a new policy – You’ll need a new medical exam, and rates will be based on your current health.
• Add a policy rider (if available) – Some insurers let you increase coverage mid-term with an add-on.
• Layer multiple policies – Buy an additional term policy instead of replacing your current one.

Important Note: Decreasing coverage is easier—you can lower your benefit amount with most insurers, but you won’t get a refund for past premiums.

What Are the Riders for Term Life Insurance Policies?
Term life insurance policies can be customized with riders—optional add-ons that enhance your coverage to better fit your needs. While term policies are generally straightforward, riders can provide additional financial protection and flexibility for you and your beneficiaries.

Common Riders for Term Life Insurance Policies

1. Living Needs Benefit (Accelerated Death Benefit Rider)

• Allows you to access a portion of your death benefit early if you’re diagnosed with a terminal illness.
• Payouts can help cover medical expenses, end-of-life care, or lost income.
• Best for: Individuals concerned about medical costs during a critical illness.

Example: If you have a $500,000 policy and are diagnosed with a terminal illness, you may be able to access 50-75% of the death benefit while still alive.

2. Conversion Rider (Term-to-Permanent Conversion Option)

• Allows you to convert your term policy into a permanent policy without a new medical exam.
• Protects you if your health declines during the term, making it difficult to qualify for new coverage later.
• Best for: People who may want lifelong coverage but currently prefer the affordability of term life.

Example: John buys a 20-year term policy at age 30. At 45, he develops a health condition but wants permanent life insurance. His conversion rider lets him switch to whole life insurance without reapplying.

3. Waiver of Premium Rider

• If you become totally disabled and can’t work, this rider waives your premium payments while keeping your coverage active.
• Usually kicks in after 6 months of disability and lasts until you recover or the policy term ends.
• Best for: Anyone who wants to ensure their policy stays in effect even if they can’t work due to a disability.

Example: Emma has a 30-year term policy but suffers a disabling accident at age 40. Her waiver of premium rider keeps her policy active without requiring her to pay premiums.

4. Child Term Rider

• Provides life insurance coverage for your children under your term policy.
  Usually covers $5,000 to $25,000 per child and lasts until they reach age 25.
• Many policies allow conversion to a permanent policy once the child becomes an adult.
• Best for: Parents who want low-cost coverage for their children in case of an unexpected tragedy.

Example: Sarah adds a $10,000 child rider to her term policy, covering her 3-year-old daughter. If her daughter reaches 25, she can convert to her own life policy.

5. Return of Premium (ROP) Rider

• Refunds all premiums paid if you outlive your policy term.
• Significantly increases your monthly premiums (can be 2-3x higher than a standard term policy).
• Best for: Individuals who want a guaranteed return on investment if they don’t pass away during the term.

Example: If you pay $30/month for 20 years, you’ve paid $7,200 total. If you outlive the policy, the insurer returns your full $7,200.

6. Accidental Death Benefit Rider

• Provides an extra payout if your death is the result of an accident.
• Often doubles the death benefit (sometimes called a double indemnity rider).
• Best for: People in high-risk jobs or those who travel frequently.

Example: If your base policy is $250,000 and you die in an accident, your beneficiaries may receive $500,000 instead.

7. Long-Term Care (LTC) Rider

• Allows you to use part of your death benefit to pay for long-term care expenses (e.g., nursing homes, in-home care).
• Helps avoid depleting savings for long-term care needs.
• Best for: Older individuals or anyone concerned about future medical care costs.

Example: If you have a $500,000 policy, you could use $200,000 for nursing home costs while still leaving $300,000 to your beneficiaries.

Is It Worth Having Term Life Insurance?

Term life insurance is worth having if you have finite costs that you know will expire such as a mortgage, car payment, credit cards, or other debt. It’s a great way to ensure you have insurance on the off chance that you pass away unexpectedly during that time frame.

If, instead, you want life insurance as a guarantee and you aren’t taking it out just to help your family cover costs like a mortgage in the event of your unexpected death, then a permanent policy would be a better option.