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Life insurance policies can last for as long as you choose — from five years to your entire life. To choose the right term length, consider factors such as your age, income, debts and whether you're a parent or plan to become one.
Read on to learn how to choose the life insurance term that’s right for you.
Table of contents
- How term length affects your premiums
- Factors to consider when choosing a policy term
- Common term length options
- Shorter vs. longer term lengths
- How to choose a term length
- Summary of Money’s guide to choosing a life insurance term length
How term length affects your premiums
Term length refers to the duration of the life insurance policy. In other words, it's the period during which the policy is in force and will pay out a death benefit to your beneficiaries if you die.
The term length you select — along with factors such as your age, health and coverage amount — will affect what you pay for coverage. That means you'll pay a higher premium for a policy with a longer term than one with a shorter term. That's because the insurance company takes on more risk by covering you for longer.
Consider, for instance, the two main types of life insurance policies: term life insurance and permanent life insurance. While the former is active for a predetermined period — typically 10 to 30 years — the latter can remain in force for the insured's lifetime (provided they keep up with premium payments).
Since term life insurance provides coverage for a certain number of years, premiums for this type of policy are much more affordable than premiums for permanent policies like universal life or whole life insurance, which don't expire as long as you keep up with premiums payments.
However, their shorter duration isn't the only reason term life insurance policies tend to be more affordable. Unlike permanent policies, which have an investment component called cash value that grows over time and policyholders can borrow against, term life policies don’t accrue value.
And while some life insurance companies allow you to renew coverage once the original term expires or convert your term life insurance to a whole life policy within a given timeframe, your premiums will likely increase upon renewal or conversion based on your age and health. That's not the case with permanent life insurance, which features level premiums that don't change over time.
Read our guide to the best life insurance companies for more information on policies, insurers and life insurance rates.
Factors to consider when choosing a policy term
If you're ready to buy life insurance and are considering a term life policy, you'll have to select a term length in addition to a death benefit. Both of these decisions will affect how much your life insurance costs.
When selecting a term length, consider the following:
Your age
Your age will influence what you pay for coverage. The younger and healthier you are, the lower your premiums will be. If you’re young, choosing a longer term will afford you coverage for most of your working years at an affordable rate.
Your children's ages
If you have or are planning to have children, you should also account for the number of years they will likely require your financial support. If your children are in elementary school, for example, a 20-year term length could replace your income until they are financially independent.
You should also consider whether your children or dependents might need financial support well into adulthood. In such cases, you may want to think about laddering policies or purchasing permanent life insurance — if you can comfortably afford it.
Your health
Your health is another factor that affects the cost of life insurance. You'll pay more for coverage if you have health issues or a genetic predisposition to certain illnesses.
Consider purchasing coverage sooner rather than later if you have a chronic illness or a family history of medical conditions such as diabetes, heart disease or cancer. As you age and your risk of developing an illness increases, it may be harder to obtain a policy at a reasonable price or even qualify for coverage at all.
You may also want to choose a longer term to ensure your insurability. Once your term life policy expires, you may have difficulty obtaining a new policy if your health has deteriorated or you've developed new conditions.
Your mortgage and other debts
The term length you choose should also depend on how long you expect to have outstanding debt.
For example, if you have 20 years left on your mortgage, a 20-year term policy with a death benefit that equals or exceeds your outstanding loan balance can help your beneficiaries cover what's left of the mortgage if you died during that time.
You should also factor in any other outstanding debt you don't want your beneficiaries to inherit, including personal loans, student loans and credit card debt.
Your budget
When choosing a policy term length, it’s crucial to consider your income and budget.
Longer-term policies cost more than shorter-term ones. With that in mind, you’ll want to weigh your budget against your dependents’ financial needs to determine how much you can comfortably spend on life insurance without putting a strain on your finances.
Common term length options
Most life insurance providers offer various term lengths, which makes it easier to find the right one for your financial situation. The most popular life insurance terms available are five, 10, 20 and 30-year terms. The shorter the term, as a rule, the lower your premium.
Although less common, some insurers offer yearly renewable and 40-year term policies.
With an annual renewable term policy, you can renew your policy every year for a specified number of years without having to reapply for coverage or undergo a medical exam. However, your premiums will increase upon renewal.
As for 40-year term policies, premiums will be higher from the start in light of the longer coverage period.
Let's go over the more common term length options in more detail.
Five-year term
When is a 5-year life insurance term recommended?
A five-year term is best for people who want to cover short-term financial obligations such as car loans, home improvement projects, business loans and credit card or medical debt.
Shorter-term policies are also a good option for smokers trying to quit. Life insurance companies generally categorize smokers as high-risk individuals, and their premiums reflect that risk. By purchasing for a 5-year policy, people who want to quit smoking can meet their insurance needs until they qualify for lower rates.
10-year term
When is a 10-year life insurance term recommended?
A 10-year term may be a good option for someone nearing retirement age who wants a death benefit that can replace the income they would earn during the last years of their career.
It may also be an option for young people who want to keep loved ones from having to cover their student loans or funeral costs, but want the possibility of ending, renewing or converting their policy if their circumstances change.
For example, suppose you’re a parent just starting their own business. In that case, a 10-year term life policy can cover your debts and obligations at an affordable rate until your business is on solid footing and you can renew your coverage or purchase a longer-term policy.
20-year term
When is a 20-year life insurance term recommended?
20-year term life insurance policies are among the most popular because they provide reasonably affordable coverage for a considerable period of time.
A 20-year term policy may be an option for families with young children or couples in good health, as they’ll lock in a low rate for long-term protection. This term length will provide you coverage during your child’s school and perhaps even college years.
It could also be a good option for people with significant debt, such as student loans. A life insurance policy with enough coverage can help protect your beneficiaries from shouldering those financial burdens.
30-year term
When is a 30-year life insurance term recommended?
A 30-year term life insurance policy is ideal for individuals with long-term financial or family obligations, such as new parents, people with a mortgage or professionals with significant college debt.
Shorter vs. longer term lengths
The following are general advantages and disadvantages of longer versus shorter policy term lengths.
For more information on the differences between types of policies, read our guide to term vs. whole life insurance.
Pros and cons of a shorter term length
- Premiums are comparatively lower, especially for those in good health
- Can cover temporary needs without a long-term commitment
- Renewing the policy multiple times may cost more than buying a longer-term policy
- You may not qualify for renewal if you develop a serious health condition
Pros and cons of a longer term length
- Coverage can span your children's school years or last up to your retirement
- Can provide sufficient coverage while still being much more affordable than permanent life insurance
- Will cost more upfront than a shorter-term policy
- May not be a good option if you smoke or are in poor health, as your premiums will be even higher
How to choose a term length
Below are the steps to follow when selecting a life insurance term length.
1. Determine your financial needs and goals
Before buying life insurance, consider how a policy fits into your overall financial plan. Take into account your debt, income, expenses and your family's future needs. You should also account for potential changes in your finances and lifestyle, especially if you're planning to buy a home or start a family in the near future.
By taking these factors into account, you can select the right type of life insurance and a suitable coverage amount. And if you decide to purchase term life insurance coverage, assessing your financial needs and goals can also help you choose the right term length.
2. Consult an insurance agent
After reviewing life insurance options on your own, reach out to a life insurance agent. A licensed agent can help you determine the right type of policy, benefit amount and term length for your situation and answer any questions regarding coverage.
An independent agent or broker can also help you compare life insurance quotes from different insurance companies in less time than it would take you to gather quotes on your own.
3. Consider a longer term
If you have concerns about your future insurability or having to pay higher premiums upon renewal as you age, talk to your insurance agent about the benefits of choosing a longer term length.
While opting for a longer term length could cost you more upfront, you would be securing coverage for a considerable period of time, and your premiums will remain the same through the end of the term.
4. Explore “laddering” coverage
If you can afford it, laddering coverage could be a good strategy. Laddering refers to purchasing several term life policies with varying term lengths to have the right coverage amount for different stages of your life.
For example, you might buy a 30-year policy to cover the duration of your mortgage, a 20-year term policy to cover your children's school years and a 10-year policy to cover the first few years of a new business venture. That way, you'd have a higher total coverage amount during the years you need it most.
Life insurance term FAQ
How do I choose the right term length for my life insurance policy?
To choose the right term for your life insurance policy, calculate how long your dependents are likely to need financial support to cover expenses such as mortgage payments and education costs.
Also consider your age, health and budget when making a decision. Although you'll pay a slightly higher premium for a longer term, selecting too short a term could result in even higher premiums when you renew your policy. And if you develop a serious health condition later in life, you could have a harder time qualifying for coverage.
What happens if I outlive my life insurance term?
If you outlive your policy term, your coverage simply ends. That means your beneficiaries won't receive a benefit in the event of your death. Additionally, you wouldn't receive a refund of the premiums you paid over the life of your policy unless you purchased a return of premium (ROP) rider.
Can I renew or convert my term life insurance policy?
Depending on your insurer, you may be able to renew your term life policy or convert it to a permanent policy. Just keep in mind that buying a new policy entails going through an underwriting process, which may include a medical exam. And your premiums may increase.
Is a medical exam required for term life insurance?
Whether or not you have to undergo a medical examination to get a term life policy depends on the type of policy you want to purchase. Fully underwritten policies typically require a medical exam, while simplified issue policies (also called no-exam life insurance) only require a medical questionnaire.
Just know that simplified issue policies tend to cost more than fully-underwritten ones because of the increased risk to the insurance company.
How much life insurance coverage do I need?
Choosing the right coverage amount entails a detailed assessment of your income, debts and expenses.
If you have dependents, the Insurance Information Institute recommends going for a coverage amount that, in combination with other income sources, can replace your annual salary plus hidden income such as your employer-sponsored health insurance or services you provide your family.
You should also account for funeral costs and other expenses your family might incur upon your death, such as downsizing or relocating.
Summary of Money’s guide to choosing a life insurance term length
To choose the right life insurance term length, consider how long your dependents will likely need your financial support.
The decision should also be based on how much you can afford to pay for coverage. The shorter the term length, the lower your premium. But choosing a shorter term could mean having to renew your policy in the future if you still require coverage, and your premiums will be based on your age and health at the time of application.
When in doubt, consult a life insurance agent or broker who can provide personalized guidance based on your financial situation and goals. They can also help you choose the right coverage amount so you can have peace of mind knowing your loved ones will be adequately provided for after you're gone.