Term life insurance is one of the simplest and most affordable types of life insurance. That’s why it is ideal for most people who want an insurance policy that will financially protect loved ones they leave behind if they were to die unexpectedly.
Like all insurance policies, term life insurance is a contract between you and an insurance company. You make monthly or annual payments in return for a payout from the insurer to your beneficiaries if you die when the contract is in place.
A permanent life insurance policy will provide coverage for your lifetime – which is why it is a more expensive option. Term life insurance, on the other hand, provides coverage for a specific number of years that you choose. So if you want to buy an affordable term life policy, how do you decide what term of coverage to get?
To make answering that question easier, this guide will walk you through what to consider when buying term life insurance and how to decide what term is right for you.
What is term life insurance?
Term life policies are usually available in increments of 10, 15, 20 or 30 years. You’ll want to consider a term length that will cover you during the years that others rely on you financially, which is usually when you have children in the house, limited assets or savings, or cosigned or shared debts (such as a mortgage). That’s because if you die during that term, the insurer will pay a death benefit to your beneficiaries.
The amount of that payout will depend on the amount of coverage you get when you purchase a policy. Many experts recommend having a death benefit that is equal to five to 10 times your annual salary. However, you might need more – or less – depending on the debts you owe, the size of your family and other factors.
Of course, the more coverage you get, the more expensive the policy will be. But you shouldn’t skimp on coverage just to save a few dollars. The payout from your term life policy – which usually is tax-free – can provide a financial lifeline for those you leave behind. It can help your loved ones pay for these common expenses:
- Funeral, burial and other final expenses
- The mortgage or rent
- Day-to-day expenses
- Debts, medical bills and taxes
- Childcare expenses
- College costs for children
Term life insurance is affordable. For example, a 30-year-old woman in excellent health can get a 20-year, $500,000 Haven Term policy, issued by MassMutual, starting at $17.82 per month. The younger and healthier you are when buying coverage, the more affordable your term life insurance rates will be. Additionally, purchasing the amount of term life insurance coverage and term length that you actually need will save you money over time. It’s easy to default to “more is better,” but keep in mind that more coverage and a longer term length will cost you more in monthly term life insurance premiums.
Who might need a 30-year term length?
Because term length – as well as your age, health and amount of coverage you get – affects the rate you pay for life insurance, a 30-year term policy will cost more than a shorter term policy. That’s because, with a longer term, the odds increase for the insurance company that it will have to pay out on the policy.
It also means that the coverage will more likely be there if your loved ones need it. A 30-year term length is often the longest term available and provides your family with a safety cushion for an extended period of time. When you are young and have many milestones ahead of you, both financial and personal, a longer term length can buy you the flexibility you need. Plus, you can lock in your premium at the time you buy your policy and pay the same rate for the next three decades. You won’t have to worry about your rate increasing as you age.
So, who may be a good candidate for the 30-year term length? Any of the following:
Couples who have recently married can benefit from a 30-year term length. If you’re joining your finances and taking on any debts – such as a mortgage – together, you’ll want to have a term that is long enough to last until those debts are paid off.
For most people, a 30-year term life insurance policy checks that box and provides a layer of financial protection for your loved ones. It can also last many young married couples until they are close to retirement age.
The most common term for a fixed-rate mortgage is 30 years. So if you’ve recently bought a home with a 30-year mortgage, getting a 30-year term life insurance policy can make sense. Most of us earmark the largest portion of our earnings for housing expenses.
If you should happen to pass away before your mortgage is paid off, the proceeds from your 30-year term life insurance policy could be used by your family to help pay off the mortgage or to continue paying the monthly note.
If your partner relies on your income for financial stability, you’ll probably want a term length that lasts him or her to near or at retirement. The proceeds of your life insurance policy can help your better half to continue to pay the bills.
When you retire, your income no longer comes from working, so you may not need as much coverage. But, while you’re young and healthy, a 30-year term length could provide peace of mind while you’re building a substantial financial cushion.
Parents of young or special needs children
If you have children and something happened to you, consider how your death would impact your family’s financial situation. Could your partner independently afford childcare and fulfill your plans to pay for college? If you’re a stay-at-home parent, could your partner afford to pay for childcare and other household tasks you handle? For many young parents, the answer may be no. If so, consider a life insurance term length that lasts at least until your children are adults or are through college (depending on what your plans are for financial contributions).
Additionally, if you are the parent of a special needs child, a 30-year term policy can be a good choice, no matter the age of your child. For those with a special needs child who may need lifelong care, a 30-year term allows you more time to set up a financial plan for his or her future.
How much does a 30-year term length policy cost?
A 30-year term length can be affordable. Here are term life insurance premiums for men and women in excellent health for a 30-year Haven Term policy, issued by MassMutual, at different ages:
|Source: Haven Life|
Who might need a 20-year term length?
A 20-year term length is the most popular choice with Haven Term policyholders. For many of our customers who are in their early to late 30s, 20 years is just enough time to cover the kids until they are adults or until the mortgage is paid or nearly paid. These individuals are also able to save a little money because a 20-year term costs less than a 30-year term length policy.
Parents of young children
Both the 20-year and 30-year term lengths could work well for people with younger children. How do you know which to pick? Consider the following:
- What kind of debt do you have?
- How long do you have until retirement?
- How risk-averse are you?
- How important is the monthly cost of coverage to you?
For those who are more risk averse and want wiggle room, they may opt for the 30-year term length. Keep in mind, though, that both spouses should have coverage. So keep that in mind when considering the cost of a 30-year versus 20-year policy. Whichever you choose, both are solid options for young families looking to leave a legacy.
Cost-conscious life insurance buyers
If you are cost-conscious, a 20-year term policy might be your choice. Term life insurance is affordable, but you do pay more for a 30-year term policy than you would for a 20-year term. If you are a bit older when you purchase your policy, that price spread can be even more attractive when comparing a 20-year term versus a 30-year term because rates increase as you age.
If cost is an issue, it’s better to have a safety net with a shorter duration than no net at all. Look for a policy term length that you feel you’ll be able to pay for over the years.
People with cosigned debts
Death is hard enough on a family. You wouldn’t want to leave your loved ones with debts to repay without your assistance. Whether it’s 10 more years on private student loans that aren’t dischargeable by death or 20 more years on that mortgage, make sure that the term length you choose will last long enough to help pay for the debts you would leave behind.
Also, keep in mind non-traditional debt scenarios that could affect your loved ones if you pass away. Have your parents cosigned for your student loans or your business loan? Do you and your partner maintain separate financial accounts but rely on one another to pay certain bills? Make sure you cover all of the bases when considering what kind of debt horizon you have. That exercise will help you pick a term length to help protect the ones you care about.
People who plan to retire in 20 years
If you think you will be retired or close to retirement in 20 years, you might consider a 20-year term to provide a cushion of coverage until you reach that milestone. At that point, life insurance coverage might not be as important because you’ll no longer be supporting your family with your income.
How much does a 20-year term length policy cost?
A 20-year term life policy can cost less than many everyday expenses, such as a gym membership or oil change. Here are term life insurance premiums for men and women in excellent health for a 20-year term policy from Haven Term policy, issued by MassMutual, at different ages:
Age Coverage $250,000 $500,000 $750,000 $1,000,000 30 Male $17.43 $22.48 $30.72 $38.96 Female $14.99 $19.46 $26.19 $32.92 35 Male $18.06 $23.34 $32.01 $40.67 Female $15.37 $20.32 $27.49 $34.65 Source: Haven Life
Who might need a 15-year term length?
A longer term isn’t always better. The length you need depends on your situation, and a 15-year term length policy might be right for you if you’re in any of the following situations or stages of life.
If your kids are in elementary school and you plan to send them to college, 15 years might be the sweet spot because the policy would cover them until they reach college age. That term won’t break the bank and provides solid insurance protection for your family.
Caregiver for aging parents
Financial protection from life insurance isn’t just about your spouse and children. You might be one of the growing number of people who care for their aging parents in their homes. If you are financially supporting older family members, a 15-year term length might be enough to cover their needs while they’re still living if you were to die.
Homeowners with a mortgage
If you have a 15-year mortgage or have whittled your longer-term mortgage down to 15 years or less, consider a 15-year term policy. The life insurance policy payout will help pay off the remainder of your mortgage in the event of your death.
Closing in on retirement
Life insurance is meant to help replace your income that others count on for their financial well-being. Once in retirement, the need for life insurance diminishes because your family is no longer counting on your income for support. So if you’re 15 years or less away from retiring, a 15-year term policy could be right for you. If the unexpected happens and you pass away, you will have provided financial support for your loved ones to help bridge that gap.
How much does a 15-year term length policy cost?
A 15-year term can be a cost-effective way to get the coverage you need. Here are term life insurance premiums for men and women in excellent health for a 15-year Haven Term policy, issued by MassMutual, at different ages:
|Source: Haven Life|
Who might need a 10-year term length?
A 10-year term might not seem long enough to provide the financial safety net your loved ones might need, but there are several situations where you could benefit from a decade of financial protection for your loved ones.
Your mortgage took longer to pay off than expected
Perhaps you moved and bought a new home after a couple of years into your mortgage, you upgraded the size and location of said home, or you needed to do some refinancing. All of these actions could result in the fact that your term life insurance policy no longer lasts until your mortgage is paid off. That might signal a need to purchase a shorter-term life insurance policy to help protect those you leave behind for the extended years of the debt.
Once again, parents are in the mix. Parents with pre-teen children in middle school might benefit from a 10-year term length, which would provide for coverage through their kids’ college years or young adulthood. Or perhaps you had another child years after buying a 20-year term policy. You might find that a 10-year term could offer protection during that gap of coverage until your youngest child is in college or a self-sufficient adult.
Retiring or financially independent within the decade
Even when you’re so close to retirement that you can smell it, a term life insurance policy might still make sense in some situations. Perhaps you had financial obligations that popped up after you became an empty nester – such as helping your kids pay for graduate school. Maybe you bought a second home and now have a new mortgage to pay off. Regardless of the reason for your need, a 10-year term could help cover those financial obligations if something happened to you before you retired. The same goes if you anticipate that you’ll otherwise be financially independent in 10 years or less and want to put some insurance protection into place should the unexpected happen during that time period.
How much does a 10-year term length policy cost?
A 10-year term might provide the protection you need at a price you can afford. Here are term life insurance premiums for men and women in excellent health for a 10-year Haven Term policy, issued by MassMutual, at different ages:
|Source: Haven Life|
How to get the coverage you need
When choosing term length, it’s essential to keep in mind that that term life insurance is intentionally meant to be one of the simpler and more affordable types of life insurance. Therefore, getting the coverage you need should also be uncomplicated. Fortunately, it can be.
Several factors go into choosing the right life insurance policy and coverage term for you. Your family structure, age of dependents, financial goals, debts, and budget will all ultimately play into which term length best serves your needs.
An online life insurance calculator can give you an accurate estimate of how much coverage you need.
Cameron Huddleston is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. She also is an award-winning journalist who has been writing about personal finance for more than 17 years. You can learn more about her at CameronHuddleston.com.