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.
TAKE CARE OF WHAT MATTERS MOST
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
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.
How long should you keep term life insurance? ›
A life insurance policy should last at least as many years as you plan to spend paying off your mortgage or credit card debt. This can protect your loved ones from being responsible for your debts if something happens to you.
At what age should you stop paying term life insurance? ›
At what age is life insurance no longer needed? Life insurance is no longer needed for many people once they reach their 60s or 70s. At this point they have retired, their kids have grown up, and they've paid off their mortgage and other debts.
How many years is best for term insurance? ›
If you're currently in your 20s, select at least a 40-year term or opt for coverage until the age of 99. You should opt for a long tenure since you can make the most of affordable premiums without having to renew the plan.
What is a good amount of term life insurance? ›
If you have dependents, now is the best time to get it. If you have young kids, you need it for at least 15–20 years. Even if your spouse works, they count on your income too. Get a term life insurance policy worth 10–12 times your income.
When should you cash out a term life insurance policy? ›
As long as your life insurance policy has sufficient cash value, you can generally borrow from the policy to pay off a debt. This applies to permanent life insurance policies only, as term life insurance policies don't have a cash value component.
Do you get money back if you outlive term life insurance? ›
When you outlive the term, with ROP life insurance, you get up to 100% of your premiums returned to you tax-free, minus administrative fees and related charges. You may not get a premium refund if you missed one or more premium payments or cancel the policy.
Why is term life insurance not worth it? ›
When is term life insurance not worth it? Term life insurance probably isn't worth the costs if you don't have any significant debts to pass on to your loved ones or you don't have dependents or a spouse that you'd leave in a bind by passing away.
What happens if you live longer than your term life insurance? ›
When you outlive your term life insurance policy, you will no longer have coverage, but you can convert to a permanent policy or buy new term insurance. Tory Crowley. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options.
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.
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.
What is the best age to buy term life insurance? ›
Anyone between the ages of 18 to 65 can opt for term insurance. However, your 20s is a good time to get into the insurance market and plan for your family's future. Since most people land their first jobs in their 20s and start earning a basic amount, they have relatively lower incomes and quite a few expenses.
Can you have too much term life insurance? ›
When buying a life insurance policy, you should think about your budget, current income and future needs for your family. This includes existing debts, education, housing and even income replacement. Even with all these expenses, you may wonder if there's such a thing as too much life insurance. The answer is yes.
When to stop term life insurance? ›
If your mortgage is paid in full or your family's savings and supplemental income are enough to keep up with payments, you could consider canceling your term life coverage.
What are the negatives to buying 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.
At what point does life insurance not make sense? ›
You can buy either term or whole life insurance; which is best will depend on your needs and financial situation. Life insurance may not be worth if you have no dependents, if you have a tight budget, or if you have other plans for providing for them after your death.
Is it worth keeping term life insurance? ›
Term life insurance probably isn't worth the costs if you don't have any significant debts to pass on to your loved ones or you don't have dependents or a spouse that you'd leave in a bind by passing away.
At what point do you no longer need life insurance? ›
Life insurance can provide peace of mind at any age, but isn't always necessary after age 60. To see if you need life insurance, assess your family's needs, your financial resources and assets, your outstanding debts and your long-term financial goals.
How long should you keep old life insurance policies? ›
Keep insurance policies while they remain active
When it comes to insurance, consider keeping current documentation and updated proof of insurance as long as you're paying on the policies, and they remain active. Any time you receive any new/updated policy information, consider shredding the outdated documents.
What happens to term life insurance if you don't use it? ›
If you take out a 20-year term life insurance policy and you die within the 20 years, your beneficiaries will receive your death benefit. If you do not die during the time period of the policy, it will expire after 20 years.
