A 20-year term is the most popular period of coverage. Here’s why.
So, you’ve decided to purchase a term life insurance policy. The next question is: How long do you need coverage?
For young and healthy people in their 20s, 30s and 40s, a 20-year policy is the most popular term. It offers protection and peace of mind for a formative time of your life, and it’s an inexpensive, reliable option. While a lot can change in 20 years, your premium stays the same and will see you through major life changes, such as marriage, kids, college and buying a home.
It’s an ideal choice for those who are still working and paying off debts while building their financial wealth. It offers their dependents a sense of financial security, and means they’ll be in a good position to renew or convert to a permanent policy later.
Life insurance companies that offer a 20-year term policy
What is the typical cost of a 20-year term life insurance policy?
As with all life insurance, the rate you’re offered is based on a range of factors, such as your age, health, lifestyle, medical history and occupation. In general, the younger and healthier you are, the cheaper your rate will be.
With term life, the premiums stay the same for the life of the policy, which is why it’s a good idea to lock in a good rate early on. That way, even if your health changes over the course of 20 years, you won’t be charged more.
Let’s look at the typical cost of a $250,000, 20-year term life insurance policy.
According to our research, the monthly cost for a 30-year-old nonsmoking man living in Los Angeles, California might be between $13.12 and $33.64. For a smoker, the rate tends to start at $39.77 and go up to $78.62.
For a 30-year-old nonsmoking woman, it might set her back between $11.71 and $30.28 a month. If she smokes, the rate could climb to somewhere between $32.03 and $62.65.
To demonstrate how age affects your rate, we’ll use a 50-year-old man as an example. A nonsmoker could be charged between $40.85 and $116.16 a month, while a smoker’s rates might start at $159.23 and go up to $316.67 — at this age, he’s riskier to insure.
A 50-year-old nonsmoking woman might pay between $31.17 and $85.09 a month. As always, life insurance is more expensive for smokers; in this case, her policy could start at $119.67 and go up to $218.09.
Once a term policy is set, it’s set. You can’t change the amount of coverage, but if your circumstances change and you realize you need more, you can purchase an additional term life policy.
Average monthly rates provided by Quotacy for a 20-year $250,000 term life coverage for a nonsmoker in great health:
For a smoker in great health:
What is my risk of dying in the next 20 years?
The reason term life insurance rates are on the cheaper side is because people are living longer. Life expectancy plays a huge part in an underwriter’s calculations.
According to our life expectancy data, for a typical 40-year-old man, the risk of dying in the next 20 years is 10.20%. For the average woman, it’s 6.46%.
To put this into context, it helps to analyze these figures next to the average life expectancy in the US. A man who reaches his 65th birthday can expect to live until 84.3, while a woman is likely to live until 86.6. Of course, these are averages — around a quarter of 65-year-olds will live past 90.
Who should buy a 20-year policy?
A 20-year policy is the most popular type of term insurance, especially for the young and healthy. In general, term life insurance has a slew of benefits:
- The monthly payments are lower than that of a permanent policy, like universal life.
- The premium stays the same. That means you’ll pay the same amount for 240 months. The price won’t increase unexpectedly or over time, so you can stay ahead of inflation.
- The death benefit is tax free.
Life insurance is highly personalized, so the best policy for you is a product of your income, your financial needs now and your financial goals for the future. For most people, the primary reason for purchasing life insurance is income replacement.
To decide if it’s right for you, think about your life 20 years from now. Are you still working? Have you paid off the debts. Do you have kids, and if so, are they all grown up? Is your spouse working? How much are they earning? Is it enough to cover your family’s living expenses?
A 20-year term suits young people as they build a family and become more financially comfortable. It provides protection for 20 years, and the knowledge their families won’t face financial trouble if they die. It’s also budget friendly, allowing them to buy high levels of protection when their need is greatest, and at a low rate. Term insurance is great for covering financial needs that disappear in time — and a 20-year policy is practical.
Let’s say you’re a 30-year-old man with a wife and two kids, aged five and seven. Your wife is looking after the children, but plans to return to work in a couple of years. You’re climbing up the career ladder and earning a steady income, but you’re still paying off your student loans or chipping away at your mortgage.
You’re the ideal candidate for a 20-year policy. It provides coverage at a time when your family is the most vulnerable and will continue to do so until your kids are 25 and 27 years old. By that time, they’ll have graduated from college or become working adults, establishing their own careers. As a parent, you want a policy that sees your family through those high-cost school years, and a 20-year term will do exactly that.
Over the course of those 20 years, you’ll have progressed in your career, and most likely be earning more money. As a result, you may have paid off a significant portion of your debts, like that pesky mortgage. If you’re a committed saver, you may be partially or completely self-insured by the time your 20-year policy ends. And if you decide you need more coverage, you’ll be in a better financial position to afford the amount you want. You may also be able to renew or convert your policy while good rates are within reach.
People in their 30s and 40s commonly purchase 20-year policies. This generally takes them up until their retirement or until their families are financially secure. It also gives them the option to purchase another 20-year policy if they outlive their current one.
What happens if my policy expires?
If your policy expires, that’s a good sign: It means you’re still alive and, hopefully, in good health. As for the next step, you have a few options:
- Renew the policy. You can apply for another term life policy just before it expires, or before you turn 70. The renewal rate will be much higher than your previous premium as it’s based on your age and health when you applied. You’ll most likely have to take another medical exam and answer those same questions you did 20 years ago. Since you’re older, you’re a riskier candidate; in other words, there’s a better chance the life insurance company will have to pay out your death benefit. That being said, if you’re still relatively healthy, you may be able to requalify at a reasonable rate.
- Convert the policy. If your term policy has a conversion feature, you can opt to upgrade to a permanent policy, such as whole life or universal life. With most providers, you can convert without providing evidence of your insurability, like undergoing another medical exam. Permanent policies are more expensive, but they offer lifelong protection and never expire as long as you pay your premiums. Conversion is a popular option for older, affluent policyholders who want to treat life insurance as an investment and a key part of their financial and estate planning. A lot can change in 20 years, so before signing the dotted line, double-check that your policy has good conversion terms in case you need continued coverage later on down the road.
- Let the policy lapse. If you no longer want or need life insurance coverage, you can simply let your term life policy end.
Should I choose a longer or shorter policy?
That depends on your situation. To calculate your needs, think about why you’re purchasing life insurance. Is it to simply cover your end-of-life expenses and pay off your debt? Or do you want to give your family a sense of financial security for the future, and maybe leave your kids or grandkids an inheritance? Your needs will be different if you’re still working.
If your needs are temporary, term life insurance will probably still be the best option for you.
Most people choose a term length that takes them up until their retirement. That way, they have the time and income to pay off their debts while building up a comfortable nest egg.
One case where you might want a shorter policy
If you’ve been steadily chipping away at your debts and predict you’ll have paid them off in less than 20 years, consider a shorter policy. This helps you to avoid the common mistake of buying too much coverage, and for too long.
One case where you might want a longer policy
If you have more than 20 years left on your mortgage, it’s a good idea to look at longer coverage, such as 25 or 30 years. Your life insurance policy should ideally cover your mortgage so your family isn’t saddled with the financial burden if you die.
There are plenty of life insurance policies on the market, and 20-year term policies are the most popular — especially for those in their 20s, 30s and 40s. It makes sense. This kind of coverage offers protection and peace of mind during a period of major life changes, like marriage, children and buying a home, all while giving you the time to pay off your debt and build up your wealth while you’re still working.
Life insurance is personalized. To make sure you’re buying the coverage that suits you best, explore our guide to life insurance.