Term Life Insurance: What You Need to Know

Term life insurance is a relatively inexpensive way to provide money for your family if you die.
Georgia RoseNov 15, 2021

Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.

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

Since term life insurance doesn’t last forever and has no investment component, it’s typically much cheaper than whole life insurance.

What is term life insurance?

Term life insurance is a contract between you and an insurance company that lasts for a specific period of time, such as 10 or 20 years. In exchange for your premium payments, the insurer pays a death benefit to your life insurance beneficiaries if you die during the term of the contract.

Unlike whole life and other types of permanent life insurance that last your entire life, term life insurance expires when the term ends. If you still need life insurance, you may be able to renew your policy, convert it to permanent coverage at a higher premium 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. With term life, you generally just pay for the potential death benefit; with whole life, higher premiums are needed to grow cash value.

Term life is a good policy to buy if you:

  • Want low premiums coupled with a large payout when you die.

  • Want to cover expenses that eventually end, like paying off your house or sending your kids to college.

Do you need term life insurance?

If no one depends on you financially and your death would not be a financial burden on your family, you may not need life insurance. But if someone you care about will need money if you die, term life insurance may be right for you.

Term life insurance policies often last for 10, 20 or 30 years, but some insurers have terms available in one- and five-year increments. If you’re a breadwinner in your family, you can choose a term that matches the years your family will rely on your income, such as the remaining years you’ll have mortgage payments. If you’re a stay-at-home parent, you may want term life insurance to cover services you provide now without payment, such as child care. Your family might need to pay someone to handle these tasks if you were gone.

If you expect your needs will change over time, you can have more than one life insurance policy, giving you extra coverage during the stages of life when you need it most.

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.

If you buy term life and then decide you need lifelong coverage after all, many policies will allow you to convert your term life policy to permanent insurance. 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.

You can find out how much life insurance you need by using the term life insurance calculator below. For more help, check out the calculators, tips and rules of thumb in our guide to how much life insurance you need.

How much does term life insurance cost?

The cost of a term life insurance policy depends on a number of factors, including:

  • Age. Younger people qualify for lower premiums because they are less likely to die in the near term.

  • Health. Many insurers require you to take a medical exam and answer health questions. Poor health can mean higher premiums.

  • Gender. Men typically die at younger ages than women, so men often pay more for life insurance.

Most term life insurance policies have level benefits and premiums, so the premiums stay the same throughout the term.

Here’s a look at how much you might expect to pay for a 20- or 30-year term life policy, compared with the cost for a whole life policy with the same death benefit.

Average annual life insurance rates for women

Age at purchase

Policy amount

20-year term life

30-year term life

Whole life

30

$250,000

$500,000

$1 million

$131

$193

$295

$186

$300

$516

$1,926

$3,802

$7,517

40

$250,000

$500,000

$1 million

$180

$289

$492

$273

$476

$877

$2,759

$5,467

$10,847

50

$250,000

$500,000

$1 million

$365

$654

$1,137

$609

$1,137

$2,116

$4,199

$8,347

$16,607

60

$250,000

$500,000

$1 million

$885

$1,676

$3,161

Not available.

$6,768

$13,487

$26,887

Source for all rates: Quotacy. Lowest three rates for each age and policy type averaged.

Average annual life insurance rates for men

Age at purchase

Policy amount

20-year term life

30-year term life

Whole life

30

$250,000

$500,000

$1 million

$149

$229

$368

$217

$358

$628

$2,180

$4,308

$8,530

40

$250,000

$500,000

$1 million

$208

$341

$588

$335

$595

$1,107

$3,220

$4,263

$8,453

50

$250,000

$500,000

$1 million

$458

$840

$1,576

$802

$1,506

$2,886

$4,963

$9,875

$19,663

60

$250,000

$500,000

$1 million

$1,240

$2,365

$4,567

Not available.

$7,964

$15,878

$31,670

Source for all rates: Quotacy. Lowest three rates for each age and policy type averaged.

Term life insurance shopping guide

Term life isn’t as complicated as whole life insurance, but choosing a policy isn’t always simple. You’ll have several decisions to make, and the right option for you may not be the same for someone else. The ideal policy is one that fits your family’s unique needs.

Know the types of term life policies

  • Level-premium term life is one of the most common types of term life insurance and the right choice for many people. Your premiums are the same every year, and your beneficiaries receive the guaranteed death benefit if you die while the level term life policy is active. According to the Insurance Information Institute, 20-year policies are the most popular.

  • Renewable term life is just like the name implies: You can choose to renew after the term expires, even if your health would otherwise cause you to be rejected from buying a new policy. However, your premiums may increase when you renew. Annual renewable term is a common type of renewable life insurance. This type of policy is typically good for people who have a  brief life insurance need, like covering a short-term loan. Otherwise, you’ll likely save money by locking in a rate with a level-premium policy.

  • Decreasing term life policies have a death benefit that goes down over time, typically with level premiums. One example is mortgage protection insurance. People may choose this type of policy to cover a specific debt that they plan to pay off during the term.

Consider policy riders

While many term life policies are simple and unadorned, some companies offer extra features that might be worth considering. An insurer may include some of these options automatically, or you might need to pay extra to add them as "riders" to your policy. A life insurance rider, also known as an endorsement, is a policy amendment that adds a specific feature to your coverage. If these extra features are important to you, make sure to ask about them when you’re shopping for a policy. Here are a few common life insurance riders.

Return of premium

With return-of-premium life insurance, if you keep your policy until the end of its term, the insurer will refund the premiums you paid. This option may be appealing if you don’t like the idea of outliving your policy and getting nothing in return for paying years’ worth of premiums.

However, your premiums are likely to be considerably higher if you choose this option. The price can be around triple the cost of a standard term life policy.

Accelerated death benefit

If you become seriously ill, this option allows you to withdraw part of the money from the death benefit while you’re still alive. According to the American Council of Life Insurers, you might qualify for an early payout of 25% to 95% of the death benefit if you:

  • Are terminally ill and expected to die within 24 months.

  • Have a serious illness that may reduce your life span, such as acute heart disease, AIDS or the need for an organ transplant.

  • Are permanently confined to a nursing home or need long-term care because you can’t handle tasks like bathing, dressing or eating on your own.

The details can vary by policy, so before you buy, ask how you could qualify for accelerated death benefits and how much money you’d be eligible to receive.

Keep in mind that if you use this option, the amount you withdraw will no longer be paid to your family when you’re gone. If you think you might use an accelerated death benefit, make sure to buy enough coverage that your family’s financial needs will still be met when you die.

Disability waiver of premium

With this option, you can skip paying premiums if you become disabled and can’t work for a long period of time, such as six months. Your policy remains in force, even though you’re no longer required to make premium payments.

Accidental death benefit

This option typically doubles or triples the payout if you die due to an accident. But be aware that "accident" might not mean what you think.

Insurance companies may strictly define what types of accidental deaths qualify for the extra payout. In addition, there may be time limits. For example, if you're injured in an accident and die of your injuries seven months later, your beneficiaries won’t get an extra payout if the rider covers only deaths within six months of an accident.

Understand the approval process

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

A fully underwritten life insurance policy typically requires a life insurance medical exam. A paramedical professional typically takes blood and urine samples and checks factors like your weight, height and blood pressure.

You can also choose simplified-issue life insurance, which 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.

Even if you have some health issues, you can generally find the lowest price by applying for a fully underwritten policy.

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 sophisticated 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.

Compare prices

Life insurance premiums typically stretch for years into the future, so it’s worth spending time now to lock in the lowest term life insurance rate you can.

It’s easy to get life insurance quotes online for term policies. Before you buy a policy, compare prices from several companies. Be sure to choose the same coverage amounts and options for each policy you compare.

You may discover that term life insurance rates vary widely. A few dollars a month might not seem like a big difference, but small savings will add up over time. Finding a good price on a top-notch policy from one of the best life insurance companies can put you and your family financially ahead for decades.

METHODOLOGY: LIFE INSURANCE RATINGS

NerdWallet’s life insurance ratings are based on weighted averages of financial strength ratings, which indicate a company’s ability to pay future claims, and complaint index scores from the National Association of Insurance Commissioners for individual life insurance. To calculate each insurer’s rating, we adjusted the scores to a curved 5-point scale.

These ratings are a guide, but we encourage you to shop around and compare several insurance quotes to find the best rate for you. NerdWallet does not receive compensation for any reviews.

Insurer complaints methodology

NerdWallet examined complaints received by state insurance regulators and reported to the National Association of Insurance Commissioners in 2018-2020. To assess how insurers compare to one another, the NAIC calculates a complaint index each year for each subsidiary, measuring its share of total complaints relative to its size, or share of total premiums in the industry. To evaluate a company’s complaint history, NerdWallet calculated a similar index for each insurer, weighted by market shares of each subsidiary, over the three-year period. Ratios are determined separately for auto, home (including renters and condo) and life insurance.

Get more smart money moves – straight to your inbox
Sign up and we’ll send you Nerdy articles about the money topics that matter most to you along with other ways to help you get more from your money.