Compare 5-year term life insurance policies

Term life insurance is flexible and affordable, and provides protection for a set period of time. Some insurers sell five-year term policies, which are ideal for those with short-term, temporary financial needs — such as a mortgage or business loan — or seniors inching toward retirement. But it’s a rare offering, and it may cost you more than a 10-year term policy.

How much is a 5-year term life insurance policy?

Life insurance rates vary, and the premium you pay is a product of your age, health, lifestyle, occupation, family medical history and the length of your term. In most cases, the longer the term, the more you’ll pay. However, only a handful of life insurance companies offer a five-year term, as the cost of writing the policy often outweighs the return of investment. As a result, you may find that you can get a better deal on a 10-year policy.

Since a majority of insurers don’t offer quotes for a 5-year term, expect to pay a higher monthly premium than the average cost for a 10-year term policy. A 10-year term life policy averages $20 a month for a 30-year old non-smoking man with $250,0000 in coverage, or $16 a month for a woman.

If you’re set on a short-term policy, it’s worth comparing 5-year term life insurance quotes to get the most accurate premium.

Average costs of a 5-year term life insurance policy

To find the average costs of a 5-year term life insurance policy, we sourced rates for healthy, nonsmoking men and women across a range of ages.

*Sample rates sourced from EMC Life Insurance and are valid as of January 2021.

Do I need a 5-year policy?

Ideally, your life insurance policy should cover your longest financial obligation. If you have temporary needs, a five-year term may seem like the right fit. However, even if you only need a 5-year term policy, most of the time it makes more sense to buy a cheaper 10-year policy.

These are the most common reasons to purchase a short-term policy:

• Protect your income. Do you have dependents relying on your income? A short-term policy protects your family’s financial future while you work toward increasing your income and paying off any debts you may have, like a student loan. When you’re in a better financial position, you can consider buying a longer policy.
• Pay off debt. If you have five years left on your mortgage, credit cards or student loans, you may only need a short-term life insurance policy. This will ensure your family won’t be saddled with those repayments if you die.
• Cover your kids’ college costs. Most people purchase a policy that expires when their children graduate from college and start earning their own money. If your kids plan to enter the workforce in five years, opting for a short term may suit you. If you die, your policy will kick in to pay for their college education.
• Plan for retirement. Short-term policies are popular among seniors in their late 50s and early 60s who are counting down the years until retirement. At this stage of your life, you’re probably in a comfortable career position and contributing more money to your savings accounts and 401(k). A term policy can protect your income in the meantime.
• Supplement your existing policy. Let’s say you proactively bought a 25-year policy when you were younger. It’s 15 years later, and you now have a bigger mortgage, a business or more kids, and you’re now underinsured. You can ladder your life insurance by purchasing an additional policy to cover the excess.
• Secure a loan. Boost your chances of approval by taking out a life insurance policy that covers the period of the loan. This reassures lenders that you have every intention of paying back the money, even if you die.
• Protect your business. If you’re a business owner or partner, you can use a short-term life policy for business purposes. You can buy key employee insurance, which protects your most valuable employees, or use the policy to fund a buy-sell agreement in case one of your business partners or shareholders dies.
• Ladder policies. Many policyholders ladder their life insurance and use a short-term policy to cover their immediate needs, even if you don’t know where you’ll be 10, 15 or 20 years from now. You can take out another policy if you find you have more long-term needs in the future, such as if you buy a home or have kids.

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Who shouldn’t get a 5-year life insurance policy?

A 5-year policy isn’t suitable for these situations:

• You’re in a dangerous job or required to get life insurance as part of a divorce decree. You might want to take out an annual renewable term policy instead of a traditional 5-year term policy if you need life insurance as part of a divorce decree or if you’re temporarily doing a dangerous job, such as mining. The policy can remain in force for as long as you’re dealing with a higher risk of death.
• You have more than 5 years left on your mortgage. If you have a mortgage that won’t be paid off in the next 5 years, consider purchasing enough coverage to last until it’s paid off, such as a 15-year term or 20-year term. Unfortunately, your debt doesn’t die with you, so your family will be responsible for those repayments should you pass.
• You want to be cost-efficient. You may be able to secure a 5-year term, but for most circumstances, a 10-year policy can cover your short-term needs for a cheaper monthly premium.

Alternatives to a 5-year term policy

If you only have short-term life insuance needs, but don’t want to pay for an over-priced 5-year policy consider these options:

• Opt for an annual renewable term policy. With this type of policy, you can choose to renew your policy each year, without having to take a medical exam. Depending on how long you need coverage, this option may cost less than a 5-year term policy.
• Choose a 10-year term policy. A 10-year term policy can cover your 5-year life insurance needs, at a lower monthly cost.

What happens after the 5-year term is up?

Your coverage expires with your policy. You’ll want to reassess your life insurance needs after your policy ends, here are the paths you can take:

• Renew the policy. Do the math to determine whether you still need coverage. If you’re under 70 and still have financial responsibilities, you can opt to purchase a new policy before yours expires. It doesn’t have to be a five-year policy; you can choose a longer term or explore annual renewable term insurance, which covers you for a year. Either way, you’ll have to reapply and prove you’re insurable, meaning you may need to take another medical exam. Your new premium reflects the current market rate and your age and health, so just know that it will be higher. Before signing the dotted line with your current company, it’s a good idea to shop around for the best life insurance rates.
• Convert the policy. Most term policies have a conversion feature. If yours does, you can upgrade to a permanent policy, such as whole life or universal life — before a deadline. Though permanent policies are more expensive, they never expire. They also have an investment component, which suits those who want to use their life insurance for financial and estate planning.
• Let the policy lapse. If you don’t need coverage anymore, you can cancel the policy without penalty. Usually, no action is needed on your part.

What’s my risk of dying in the next 5 years?

When writing your policy, life insurance companies first consider your age and health. The reason is far from subtle: They know the older you are, the more likely they’ll have to pay out your policy.

To determine your rate, underwriters look at life expectancy data.

Let’s use a 60-year-old policyholder as an example. According to our research, the average 60-year-old man’s risk of dying in the next five years is 6.37%. For a woman, it’s a little lower at 3.84%.

To put this into context, look at these figures next to the average life expectancy in the US. A man who hits his 65th birthday can expect to live until 84.3, while a woman is likely to live until 86.6. These are average numbers — around a quarter of 65-year-olds will reach the age of 90.

How likely am I to die in the next 5 years?

Bottom line

If you have people relying on your income, a term policy is an affordable way to protect your family. While five-year term life policies aren’t readily available, they make sense for those who have short-term financial obligations. They’re also popular among seniors edging closer to retirement and business owners who are trying to secure loans and key employee insurance.

Check out our guide to life insurance to find the short-term life insurance policy that best meets your needs.

Frequently asked questions

• What does laddering mean?

  Also known as “layering” or “staggering,” laddering is a strategy that involves purchasing multiple life insurance policies. Usually, people ladder policies of different lengths to match their financial obligations. Say you’re 40 years old, with two teenagers and 15 years left on your mortgage. You might buy a 15-year policy to pay off your mortgage, and an additional 10-year policy to see your kids through college.

• How does the accelerated death benefit rider work?

  Available on most policies, an accelerated death benefit rider allows a terminally ill person to access a portion of their death benefit while they’re still alive. This money can be used to pay for medical care and get your family’s financial affairs in order. When you die, that amount is subtracted from the death benefit your beneficiaries receive, along with an interest charge.

• If I list more than one beneficiary, do they all receive the same payout?

  Not necessarily. When you’re finalizing your policy, you can designate how you want the death benefit to be split among your beneficiaries. It doesn’t have to be equal, and you can choose primary and contingent beneficiaries.