What Is Term Life Insurance?

Imagine a world without yourself in it. Would your family need help paying the bills? Term life insurance can help you bridge that gap affordably. If you die while the policy is in force, you’ll leave behind a lump sum of cash for your loved ones.

Find out how term life insurance works, and when to buy term life insurance coverage.

Term life insurance offers coverage for a specific period of time, such as 10, 20 or 30 years. The length of your term life policy should match your longest financial commitment, such as your mortgage. As long as you keep up with your premiums, your insurer will pay a sum of money to yourlife insurance beneficiaries if you die during the term.

Term life insurance is a good choice for most people as it can cover the time of your life where you have the most financial obligations. Consider this type of coverage if:

• People — like a spouse or child — depend on you financially.

• Your death would be a financial burden to others.

• You have debt that will be paid off after a number of years, such as a mortgage.

• You’re a stay-at-home parent and your family would need to pay for help with household tasks and other services if you die.

» MORE: Which type of life insurance is right for you?

Unlike whole life and other types of permanent life insurance that may last your entire life, term life insurance coverage expires when the term ends. This means that if you outlive your policy, there won’t be a payout to your loved ones. If you still need life insurance, you may be able to renew your policy, convert it to permanent coverage at a higher cost or buy another policy.

Term life doesn’t build cash value that you can borrow against, like permanent life insurance does. This is one reason term life is cheaper than whole life. Term life provides temporary coverage, and with whole life, you're paying for longer coverage and the ability to grow cash value.

Term life insurance policies often last for 10, 20 or 30 years, but some insurers offer policies in one- and five-year increments. If you’re a breadwinner in your family, aim to choose a term length that matches the years your family will rely on your income.

You can buy more than one life insurance policy for extra coverage during the stages of life when you need it most. This strategy is known as “laddering,” and it’s useful if you have financial needs set to end at different times. For example, you could take out a 30-year policy to match your 30-year mortgage and a 20-year policy to cover your children until early adulthood, when they’re likely to start earning their own money.

Ideally, by the time your coverage ends, you’ll no longer need life insurance. Your children will be grown, your mortgage will be paid off, and you’ll have enough savings to be financially secure.

The average cost of a 20-year, $500,000 term life insurance policy is $26 a month, according to Policygenius, a life insurance brokerage.

Term policies are the most straightforward and affordable type of life insurance. The premiums stay the same so you know exactly how much you'll pay for your coverage over time. The cost of a term life insurance policy depends on several factors, including your age, health and gender.

» MORE: Average life insurance rates

Average annual term life insurance rates for nonsmokers

Here’s a look at how much you might pay for a $500,000, 20-year term life insurance policy as a healthy nonsmoker.

Average annual term life insurance rates for smokers

Smokers tend to pay more for coverage. Below are sample rates for a 20-year, $500,000 term life insurance policy for smokers who are otherwise healthy.

To get an idea of what life insurance might cost in your situation, use our tool below.

Term vs. permanent life insurance

When shopping for a life insurance policy, your first step should be to decide between the two basic types of life insurance: term and permanent. Term life insurance offers shorter-term coverage, while permanent policies — like whole life insurance — last your entire life. They also have a cash value that grows at a fixed or variable rate.

Most term policies have conversion options, which means you can convert your term life policy to permanent insurance later on. Your premiums will go up, but you can stay insured without having to prove you’re still in good health. Some policies allow conversion at any time, while others permit it only in the first few years of coverage or before you reach a certain age, like 65 or 75.

If you've settled on term life insurance, follow these steps to get the policy that best suits your needs.

1. Know the types of term life policies

Most term policies are level term life insurance. This means your death benefit and premiums stay the same for the life of the policy Your beneficiaries receive a sum of money if you die while the policy is active. Other term life options are listed below.

2. Consider policy riders

Some companies offer policy features called life insurance riders, often at additional cost. These common riders can enhance your coverage:

3. Understand the approval process

Before you buy coverage, insurers typically want to know how healthy you are. You may need to answer some health questions, and it’s important to be truthful. Companies can reject a life insurance claim if the information you provided was inaccurate or incomplete.

The approval process varies based on the type of policy you're applying for:

Fully underwritten life insurance typically requires a medical exam. A medical professional may take blood and urine and check factors like your weight, height and blood pressure. Even if you have some health issues, you can generally find the lowest price by applying for a fully underwritten life insurance policy.

Simplified issue life insurance doesn’t require a medical exam. You’ll still answer health questions, and the insurer may pull data about you from other sources, such as your prescription drug history and driving record.

Guaranteed issue life insurance skips both the questions and the exam and doesn’t require any information about your health for approval.

For some people, accelerated underwriting is another way to get life insurance without a medical exam. You answer health questions online or by phone, and the insurer uses outside data and algorithms to evaluate your application.

You might get rapid approval, with rates similar to those you’d get if you’d taken an exam. However, if you’re in less-than-perfect health, some companies that offer instant life insurance may require a medical exam before deciding whether to approve your application.

4. Compare prices

Every insurer has its own criteria for setting rates, so premiums can vary — sometimes significantly. It's worth getting quotes from a handful of insurers to make sure you're locking in the lowest possible rate.

It’s easy to compare life insurance quotes online for term policies. Be sure to choose the same coverage amounts and options for each policy you compare.

Term life insurance lasts for a set number of years, while whole life insurance typically lasts your entire life. Because whole life insurance pays out regardless of when you die and includes a “cash value component” — a reserve attached to your policy that grows over time — it’s more expensive than term life insurance.

Read NerdWallet’s term life vs. whole life insurance: differences and how to choose.