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What Is Term Life Insurance & Who Should Buy It?

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Updated: Oct 2, 2023
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Term life insurance is a policy that offers financial protection for a set period, usually ranging from 10 to 30 years. If the insured dies during this term, a death benefit is paid to the beneficiaries. This type of insurance is often sought by individuals who need coverage during specific times in their lives. For example, parents with young children may choose term life insurance to ensure financial stability for the family if something were to happen to them. Similarly, those with a mortgage or significant debt might find this coverage suitable to protect against financial strain.

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Key Takeaways

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Term life provides up to 30 years of temporary life insurance coverage that can pay off short-term debts when you pass away.

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Because the entire premium is allocated to the death benefit, you can typically secure a sizable death benefit at a low cost.

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Term life insurance differs from permanent life insurance because it has no cash value or investment component.

How Does Term Life Insurance Work?

When you're considering term life insurance, the process begins with selecting a coverage amount and the term length, which can vary from 10 to 30 years. You'll then apply by completing a questionnaire about your health and lifestyle and possibly undergoing a medical exam. The insurer will evaluate your application, and if approved, you'll start paying regular premiums to maintain your coverage.

During the term, if you were to pass away, the policy would pay a predetermined death benefit to your chosen beneficiaries. This benefit can be a vital financial support, helping to cover significant expenses like mortgages, education costs or other financial needs that your family might face in your absence.

Coverage ceases when the policy term ends, but you're not left without options. You can choose to renew the policy, although this might come at a higher premium due to your age or changes in your health. Alternatively, you may convert it to a permanent policy, which offers lifelong coverage, but often at a higher cost. If neither of these options fits your needs, you can simply let the policy expire.

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How Much Does Term Life Insurance Cost?

The cost of term life insurance varies based on a number of factors, including health, age, coverage amount, the length of the term and lifestyle. Generally, the younger and healthier you are, the lower your premium may be.

Term life insurance is often more affordable than other life insurance products like whole life insurance. While term life covers a specific period, whole life provides coverage for a lifetime and includes a cash value component, typically making it more expensive. The choice between term and whole life depends on your individual needs, financial goals and budget, with term life often being a cost-effective option for many.

MoneyGeek obtained real quotes for term life insurance at different ages to show you how much term life insurance may cost. The tables below show how much you could pay for a 10- or 20-year term policy at different coverage levels.

Term Life Insurance Average Monthly Premiums: 10-Year Policy
$1 Million





















Term Life Insurance Average Monthly Premiums: 20-Year Policy
$1 Million





















Types of Term Life Insurance

Each type of term life insurance offers specific benefits and considerations, allowing for a tailored approach to personal financial protection.

1. Level Term: With premiums and death benefits that remain constant, level term insurance is suitable for individuals or families wanting predictable costs and stability, especially during key life stages like raising children or paying off debts.

2. Decreasing Term: The death benefit decreases over the term, making this a fit for those with diminishing financial obligations. Homeowners often choose decreasing term to align coverage with a declining mortgage balance.

3. Increasing Term: This type offers a growing death benefit, making it ideal for young families or professionals expecting their financial responsibilities to increase with future expenses, such as educational costs for children.

4. Convertible Term: Convertible policies provide the option to switch to permanent coverage without a medical exam or evidence of insurability. This flexibility makes it suitable for those who anticipate their long-term needs might change, such as newlyweds planning for a family.

5. Renewable Term: With the option to renew coverage without requalification, this type is suitable for those who want to keep their insurance options open, even if their health changes. It may come with higher premiums upon renewal.

6. Group Term: Often provided by employers, group term covers multiple individuals under one policy. It's typically a fit for employees seeking a convenient and cost-effective insurance option through their workplace.

7. Return of Premium Term: This type of term insurance includes an option for returned premiums if the insured outlives the term. It's attractive to those wanting the security of term coverage but also wishing to recoup their investment if the coverage goes unused.

Comparing Term and Permanent Life Insurance

When considering term vs. permanent life insurance, it's essential to recognize that these are two primary categories of life insurance that provide financial protection for loved ones. However, they differ in terms of coverage duration, cost and additional features, making them suitable for different financial needs and life stages.


  • Purpose: Both types aim to provide financial security to beneficiaries in the event of the insured's death.
  • Death Benefit: Both offer a death benefit that can be used to cover expenses like debts, funeral costs or ongoing family support.


  • Duration: Term life insurance covers a specific period, usually 10 to 30 years. In contrast, permanent life insurance covers the insured's entire life.
  • Cost: Term life is generally more affordable, with premiums focused solely on the cost of insurance. Permanent life insurance, encompassing whole life and universal life, tends to be more expensive due to lifelong coverage and additional features.
  • Cash Value: Permanent life insurance often includes a cash value component that grows tax-deferred over time. This can be borrowed against or even withdrawn for financial needs. Term life doesn't offer this feature.
  • Flexibility: Permanent life insurance may offer more flexibility in premiums and death benefits, while term life is more straightforward with fixed rates and benefits for the chosen term.

Term life insurance might be a fit for those seeking cost-effective, temporary coverage aligned with specific financial responsibilities. On the other hand, permanent life insurance may be suitable for those looking for lifelong coverage with additional investment components.

Pros & Cons of Term Life

Term life insurance is an excellent option for many individuals and families, but it’s not suitable for everyone. Consider the pros and cons of term life insurance to decide if it’s the right plan for you.

Pros of Term Life Insurance

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    Easy to Understand

    Life insurance can be complicated, making some hesitant to buy coverage. Permanent life insurance has features that combine interest, market fluctuations and savings with life insurance proceeds. Term life is easy to understand because it simply provides a death benefit when you pass away within the policy term, as long as premiums are paid.

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    Affordability is often one of the key advantages of term life insurance. Since it provides coverage for a specific period and lacks the investment component found in permanent life insurance, the premiums are generally lower, making it a more budget-friendly option for many individuals and families.

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    More Coverage Available

    After determining how much life insurance you need, you may be surprised to see the final figure is $1 million or more. This sizeable figure can cause people to panic, worrying they can’t possibly afford the coverage they need. You can buy $10 million or more in life insurance with term life, getting you the coverage you need in one policy at an affordable price.

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    Tax-Free Death Benefit

    If you die during your policy term, your beneficiary or beneficiaries will receive a lump sum from the life insurance company. Luckily, term death benefit proceeds are tax-free, so your beneficiary can keep the total amount to use as they wish.

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    Flexible Payment and Policy Options

    Term insurance offers several payment and policy options. You can choose to pay your premiums monthly, quarterly, semi-annually or annually. Most life insurers charge a processing fee if you don’t pay once per year, so you may be able to save with an annual payment. You can also choose how long you need coverage, whether one year or 30. The most common terms are in increments of five years, from five to 30 years in coverage.

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    No Penalty for Canceling

    If you decide to cancel your term policy while it’s active, you can do so without incurring any fees or penalties.

Cons of Term Life Insurance

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    Temporary Coverage

    Term life only offers temporary coverage, so it’s not always the best option for everyone. If you have permanent life insurance needs, like funeral expenses or caring for a special needs child into adulthood, term life may not be the best choice for you.

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    No Cash Value

    Term life doesn’t build cash value, meaning it doesn’t include a savings account to borrow or withdraw from. If you cancel a term policy, you don’t get any money back unless you get a policy that offers a return of a premium feature, which comes with higher costs. This differs from permanent life insurance, which provides a surrender value based on the cash savings account if you cancel the policy.

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    Upper Age Limit

    Term life has a lower upper age cap than permanent life insurance. Though the maximum age limit varies by company and term length, most people can apply up to age 50 for all term lengths. Once you reach 60 or older, you may be limited to buying a 10- or 20-year term without the option for a 30-year period.

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Should You Buy Term Life Insurance?

Term life insurance offers temporary coverage for temporary financial needs, while permanent life insurance covers lifetime needs. Every situation is unique, so weighing your options and considering what’s best for you is always a great idea.

Young, Newlywed Couples

Young couples may not think they need life insurance, but this is the best time to buy term life coverage. The younger and healthier you are, the better your rates will be. Term life insurance proceeds can be used for many purposes, including replacing income, paying off outstanding debts like a mortgage, car and student loans and covering future financial needs like childcare and education costs.

Business Owners

Business owners can use term life insurance proceeds to pay off debts, expenses and outstanding taxes. The details are typically outlined in a buy-sell agreement contract, which is especially important if ownership or shares in the company are to be transferred to another party. Owners with valuable employees can also take out term life insurance on them, often called key person insurance. In this instance, the owner pays for the policy, and the company is the beneficiary, receiving the death benefit if the key employee dies.

Sole Financial Providers

Losing a sole source of income can be detrimental to a family, which is why term life insurance can be vital in these situations. The remaining parent can use the death benefit as income replacement, allowing them to stay at home with their children instead of having to go to work right away. The proceeds can also be used for everyday expenses, current and future childcare and education costs.

Individuals With Significant Debts

Term life insurance can be used to pay off debts upon the insured's death. The designated beneficiary will use the death benefit proceeds to pay off those debts — like student loans or a mortgage — rather than have to pay them out of pocket or forfeit the property. Proceeds can also be used to replace income or provide current and future financial support for remaining family members.

Stay-at-Home Parents

Stay-at-home parents provide enormous benefits to their families, allowing the other parent to work and earn income. Buying term life insurance for the stay-at-home parent means the working parent can continue working or stay home with the kids if they choose. The benefit can then be used for income replacement or to pay for childcare and other expenses.

Frequently Asked Questions About Term Life Insurance

While buying term life insurance is often easier than purchasing other types of life insurance, you may still have questions throughout the process. Here are the answers to some of the most common questions about the pros and cons of term life insurance.

About Mandy Sleight, Licensed Insurance Agent

Mandy Sleight, Licensed Insurance Agent headshot

Mandy Sleight is a licensed insurance agent and has worked in the industry since 2005. She has her property, casualty, life and health licenses. Mandy has worked for well-known insurance companies like State Farm and Nationwide Insurance, and most recently as the Operations Coordinator for a startup employee benefits company.

Mandy earned her Bachelor of Science degree in Business Administration and Management from the University of Baltimore and her Master of Business Administration from Southern New Hampshire University. She uses her vast knowledge of the insurance industry and personal finance combined with her writing background to create easy-to-understand and engaging content to help readers make smarter choices with their budgets and finances.