When you’re buying term life insurance, you have two main decisions to make: how much life insurance to buy and how long the coverage should last. You want the policy to continue until your last major obligation is taken care of. So, the duration of your financial commitments will generally determine how long your term life insurance policy should last.
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Your family is unique — your life insurance should be, too.
How long is a term life insurance policy?
Term life policies are generally sold in lengths of five, 10, 15, 20, 25 or 30 years. In some cases, you can find 40-year term life insurance. The longer the policy, the higher your life insurance quotes are likely to be. That’s because you’re locking in your rate for a longer time, and as you age, health problems tend to crop up and your likelihood of dying increases.
Another option is annual renewable term life insurance, which guarantees your ability to renew coverage annually for a set period of time without reapplying. But when you renew coverage, the premiums typically increase. As such, you’ll generally pay less over time for a standard level term life insurance policy.
Which term length is right for you?
Here are the most common term lengths and who they might be a good fit for.
Annual renewable term life is a good choice for people who have short-term financial obligations, or who want to cover a gap in employment until they get a new group life insurance policy through their next job.
5-year term life insurance may also be a good fit for someone with short-term financial obligations, such as a small loan or college fees.
10-year term life insurance may benefit parents or guardians with older children who still rely on their income, or someone approaching retirement who needs to cover the last leg of their employment.
20-year term life insurance is the most popular term length and can help cover the income of new parents or newlyweds as their family grows.
30-year term life insurance can help cover large, long-term financial obligations, such as a mortgage or college debt. This term length may also be a good fit for young applicants who want to cover the majority of their earning years.
If your longest-lasting financial obligation falls in between available term periods, round up. For example, if your mortgage will be paid off in 17 years, round up your term choice to 20 years.
How to choose the right term length
If you're wondering how long your term length should be, think about the following three factors.
The length of your mortgage: Your mortgage is a big part of your monthly expenses and often the main reason people buy life insurance. If you want your life insurance to cover your mortgage, consider how many years you have left until you pay off your house. You don’t want your policy to expire after 20 years if your mortgage payments will last another decade after that.
How long until children are on their own: Children can be expensive, requiring food, clothing and education, not to mention summer camps, music lessons, various electronic devices and so much more. How long until you can expect your kids to support themselves? That may be at least a few years beyond age 18, particularly if you’re planning to pay for college.
The number of years until you retire: Ideally you’ll have savings for when you stop working. Therefore, if you’re buying term life insurance primarily to replace your income, you may not need it after retirement. Once your kids are grown up, the house is paid off and you’re living off your retirement savings, life insurance is one more thing you no longer need to worry about.
FAQs
Term life insurance lasts for a set period of time, such as 10 or 20 years, and it's the cheapest type of coverage. Term life policies are sufficient for most people. You can select a term length that matches the number of years other people will rely on you financially.
How long should term life insurance last? ›
The most popular term lengths are 10, 20, and 30 years. Many people choose a term that'll cover them while they have the highest expenses, like while they're paying off a mortgage or raising children. But your term life insurance policy should only last as long as those expenses and outstanding debts.
How long should I take term insurance? ›
Usually, most insurance companies offer a policy term between 5 to 40 years. One should always opt for a policy term depending on their retirement age. It can vary of course. For instance, if you opt for 60 years as retirement age, there could be someone else who would opt for 65 as retirement age.
Is $100 000 life insurance enough? ›
And, while there is a wide range of coverage limits, a $100,000 life insurance policy is a common choice for many people. That's because a policy with a $100,000 benefit amount offers a significant payout to beneficiaries — allowing them to take care of the necessary expenses that arise after you're gone.
What is a good amount of term life insurance? ›
There are several ways to calculate your term life insurance needs. And while no single formula may be right for you, it gives you a place to start. The simplest and most basic method most insurance and financial professionals recommend is to buy at least 10 times your annual income in life insurance.
How long does term life last? ›
Term life insurance provides coverage for a certain length of time, with policies commonly lasting between 10 and 30 years. Unlike a permanent life insurance policy, which offers lifetime protection under most circ*mstances, term life insurance coverage typically ends once you've outlived the term.
What happens to a 10 year term life insurance policy after 10 years? ›
A 10-year term life insurance policy expires after the 10-year term length ends. If you don't pass away during this period, your coverage ends. This means that if you pass away afterward, your beneficiaries won't receive a death benefit.
What is the thumb rule for term insurance? ›
Underwriter's Thumb Rule
According to this rule the individual opting for a Term Insurance policy must have multiple times more sum insured than their annual income. In many other cases experts also suggest that you go for a Life Insurance policy that provides ten times more sum insured than the present annual income.
Why not to buy term life insurance? ›
People who buy term life pay premiums for an extended period, but they get nothing in return unless they have the misfortune to die before the term expires. Plus, term life insurance premiums increase with age.
Is it worth keeping term life insurance? ›
Term life insurance is smart when you have debts or a time-boxed expense — something you want to ensure your dependents can afford should you pass away. This might include a mortgage or credit card balance, for example, or something like school tuition or car payments.
Wealthy individuals with a net worth over $1 million can use life insurance to provide for their loved ones in the event of their death, as an investment vehicle, or as protection against estate taxes. Katherine Murbach.
Is life insurance worth it if you're rich? ›
Life insurance is a popular way for the wealthy to maximize their after-tax estate and have more money to pass on to heirs. A life insurance policy can be used as an investment tool or simply provide added financial reassurance.
Is $500,000 enough life insurance? ›
Is a $500,000 life insurance policy the best for you? Whether a $500,000 life insurance policy is best for you can depend on the specifics of your situation. For someone, $500,000 in life insurance might be more than enough while others may benefit from having a $1 million life insurance policy instead.
What is the best age to buy a long term life insurance policy? ›
Generally, the younger and healthier you are when buying life insurance, the more money you'll save. As we age, we're at increased risk of developing health conditions, which can result in higher mortality rates and higher life insurance rates. You'll typically pay less for life insurance at age 25 than at age 40.
What does Dave Ramsey say about life insurance? ›
Wondering what Ramsey teaches about life insurance? This article covers all the types, but let's cut to the chase: we always recommend buying term life. In particular, you want a policy that lasts 15 or 20 years with coverage that's 10-12 times your annual income.
At what age does term life insurance get expensive? ›
“Every birthday puts you one year closer to your life expectancy and thus, you are more expensive to insure,” says Huntley. He estimates that rates increase every year by 5% to 8% in your 40s, and by 9% to 12% each year if you're over age 50.
What happens when my 20-year term life insurance expires? ›
If your term life policy expires while you're still alive, your insurance company will notify you that your coverage has ended, and you no longer need to pay your premium. If you still need coverage, it may be possible to renew your policy for a set period of time.
Do you get money back if you outlive term life insurance? ›
If you're still living when the policy term ends, the insurance company pays back all or some of the money you spent on payments, depending on your policy, in the form of an ROP benefit.
What is the main disadvantage of term life insurance? ›
Term Life insurance Cons: If you outlive the term length, your coverage will end and you won't receive any benefits. You will not be covered your entire lifetime and your policy will not accumulate cash value like an investment account does.
What happens at the end of a 20-year term life insurance policy? ›
After the 20-year level term ends, your coverage expires. By outliving your policy, both the death benefit and two decades of premiums are lost. Terms are available in different lengths, typically from 10 to 30 years, so it's important to select one that you think will be sufficient for your financial needs.
