Compare 5-year term life insurance policies

You may consider a five-year term life policy for protection during key short-term financial obligations, such as covering a key business partner or using it as collateral for a loan. However, in most cases, a policy with a longer term offers better value and guarantees a fixed cost for longer based on your current health.

Plus, only a handful of life insurance companies offer a five-year term, limiting your policy options. Weigh the pros and cons of this term length and compare policies that offer you the best balance of coverage and value.

Average cost of 5-year term life insurance? It depends on your age.

Since a majority of insurers don’t offer quotes for a five-year term, expect to pay a higher monthly premium than for a 10-year policy. To help you compare, a 10-year policy costs around $15 per month for a healthy, 30-year-old man or woman.

However, life insurance rates vary, and the premium you pay is based on your age, health, lifestyle, job, medical history and more.

*Sample rates sourced from EMC Life Insurance for healthy, nonsmoking men and women. Valid as of January 2021.

When a 5-year term policy might make sense

Think about whether five-year term life insurance is long enough to cover your financial obligations and whether its cost is worth choosing the five-year term over a longer one like 10 or 20 years. For example, it makes more sense to buy a 10-year policy with a cheaper monthly premium, even if you don’t need protection for that long.

You may want a short-term policy if you’re:

• Close to financial freedom but not there. A short-term policy protects your family’s financial future while you work toward increasing income or paying off the last few debt repayments, like your mortgage.
• Covering your kids’ college costs. If your kids rely on you to pay for their higher education, opting for a short term may suit you. If you die, your policy will pay for the rest of their college expenses.
• Needing longer protection, but your first term ended. You may want protection for loved ones after your first 20- or 30-year policy until you can tap into your retirement.
• Protecting your business. You can buy key employee insurance to help your business recover or to fund a buy-sell agreement if an important business partner or shareholder dies.
• Securing a loan. Taking out short-term life insurance reassures your lender that you have every intention of paying back the loan, even if you die.
• Supplementing an existing policy. Suppose you bought a 25-year policy when you were younger. Later, you realize that you’re underinsured because of a bigger mortgage, owning a business or having more kids. You can buy an additional policy to cover the rest, a strategy called laddering.

3 downsides to 5-year term life insurance

Most people benefit from choosing a term length that’s longer than five years for these reasons.

You could get similar rates for a longer term

A five-year policy could cost you $5–$10 per month for a young, healthy person. However, the same person could pay $15 to $20 per month for a $250,000, 20-year policy, which locks in your rate for 15 years longer. Depending on personal factors like your age and health, a longer term could be the cheaper option.

You may need another policy after five years — and it’ll cost more

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.

5-year terms are hard to find

Not many life insurance companies offer five-year terms, possibly because this short term doesn’t span the length of most people’s financial obligations. If you want a five-year term, you’ll have fewer insurance companies to choose from. Fewer choices could mean higher premiums charged or choosing a lesser-known company in the industry.

Alternatives to a 5-year term policy

Consider these options if you have short-term life insurance needs but don’t want to pay for an overpriced five-year policy.

• Buy five-year renewable term life insurance. A renewable term life policy lets you choose to renew it each year without needing a medical exam. This option locks in your current health status and a level premium for five years, and you can cancel or keep it after the term ends.

• Get a longer term and cancel before it ends — or keep it. A 10-year term or 20-year term life policy can cover your five-year life insurance needs at a lower monthly cost. If you truly don’t need it after five years, you can cancel the policy to save on the monthly premiums.
• Go with convertible term life insurance. Most term policies have a conversion feature. If yours does, you can upgrade to a permanent policy like whole life insurance before a deadline. Though permanent policies cost more, they never expire and have an investment side to them.
• Opt for a burial policy. If you’re looking to cover your funeral and end-of-life expenses, a burial policy would work better than short-term life insurance. This whole life policy stays with you for the rest of your lifetime as long as you pay the premiums.

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Bottom line

A five-year term life policy may make sense to protect a specific financial obligation like your kids’ college expenses or starting a new business. However, weigh this policy’s cost against the cost and benefit of buying a longer term like a 20-year term life policy. You may find that longer-term policies offer the best value or that you have more choices of reputable insurance companies.

Since not many insurers offer 5-year term policies, check out other term life insurance companies to make sure you’re choosing the right option for you.