Term life insurance: How it works and average rates | finder.com

Term Life Insurance Finder

Give your loved ones a sense of financial security with term life insurance.

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Term life insurance provides coverage for your family and anyone else that is financially dependent on you in the event that you pass away or are diagnosed with a terminal illness. This type of policy can provide a one-time payment to you or your beneficiaries if:

  • You pass away during the specified “term” of the policy.
  • You’ve been diagnosed with a terminal illness and are not expected to live for longer than 12 months — this is commonly known as an accelerated death benefit.

Keep reading to learn if term life insurance is right for you and what steps you can take to get quality coverage at the right price.

Why we like:

Term life insurance with no policy fees and the freedom to cancel anytime. Simple application process that can get you approved for coverage instantly.

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Why we like: LadderLife™ Life Insurance

Term life insurance with no policy fees and the freedom to cancel anytime. Simple application process that can get you approved for coverage instantly.

  • No brokers trying to upsell you
  • Your rate is locked in until your term expires
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What are the main features of term life insurance?

Term life insurance can help ease financial stress for your family and loved ones in the event that you pass away during the specified policy term. Some of the features that should be highlighted when shopping for term life coverage are:

  • Lump sum benefit payout. When you take out a term life policy, you’re paying for an agreed benefit amount which will be paid to your family when you die. This payout allows your family to use the money to pay off any outstanding expenses, such as a mortgage or credit card debt. The benefit lets your family maintain their lifestyle and can help pay for future costs — such as your children’s education.
  • Accelerated death benefit. If according to a medical doctor you’re expected to die within 12 months, your policy can pay out the benefit as an advance payment to help with final medical expenses.
  • Can sometimes renew at the end of the term. Most policies can be renewed until you reach the age of 95, however, if you have a healthy retirement investment, you may not have to renew your policy.
  • Few exclusions for not paying a benefit. Most plans won’t pay out if your death is the result of suicide. Apart from that, if you have been honest and detailed on your application, your family will usually be able to rely on a cash payout when you die. Make it a point to read your contract so that you’re aware of each situation where a benefit won’t be paid out.
  • Additional options available. Since your death is not the only circumstance which could leave your family unable to rely on your income, you can add extras to your term life insurance policy such as critical illness and disability that will cover you in the event you suffer from severe sickness or are unable go back to work.

Can I bundle term life with other types of coverage?

Term life insurance can also be combined with other types of “living insurance”. Critical illness and disability provide a lump sum payment if you become disabled or suffer a traumatic event such as stroke, cancer or heart attack.

Is term life insurance tax deductible?

Because the benefit paid out in the event of a death is not taxed, your premiums are not tax deductible most of the time.

How long does a term life insurance policy last for?

Typically term life policies last for either 5, 10, 15, 20, 25, 30 or 35 years. The length of coverage you want depends on a number of factors but the most common policies are for 20-year and 30-year terms.

What happens at the end of my policy?

If you outlive your policy, your coverage will expire and your beneficiaries won’t receive any money. These are your options at that point:

  • Purchase another term life insurance policy. If you still have financial obligations, like a mortgage or student loans, or people relying on your income, consider taking out another term life policy. You can expect to pay a higher premium now that you’re older. To help lower the cost, opt for a shorter term, such as five or ten years.
  • Look into annual renewable term life insurance. If you don’t want to commit to a lengthy policy, you can take it year by year with annual renewable term (ART) life insurance. With this type of insurance, your insurer will renew your policy each year up to a predetermined number of years. You won’t need to retake the medical exam or answer questions about your health. The downside to this approach is that your premiums will increase each year.
  • Do nothing. If you no longer have a need for life insurance, you can simply let your coverage lapse.

Can I convert to a permanent life insurance policy?

Many term life policies come with a conversion option, which allows you to upgrade to a permanent policy, like whole life. If you want to convert your coverage, you’ll need to do it before a deadline. This varies between providers, but it’s usually within the first five years of taking out a policy, or before you turn 65, 70 or 75.

Compare term life insurance companies

Name Product Issue Ages Coverage Range Medical Exam Required State Availability
18 - 60 (or 55 for smokers)
$50,000 to $350,000
No
Lifefy is not available in the following states: Hawaii, Illinois, Massachusetts, Minnesota, Montana, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Puerto Rico, Utah, Virginia, Washington
Offers quick, affordable and completely paperless solutions. Coverage up to $350,000. Only available in 38 states.
18 - 64 years old
$100,000 to $3,000,000
No
All 50 states
Customized term life insurance policies up to $3 million, no medical exam required.
18 - 85 years old
$10,000 to $10,000,000+
Depends on provider and policy
All 50 states
Compare quotes from 16 life insurance companies side by side.
20 to 60 years old
$100,000 to $8,000,000
No
Not available in New York
Term life insurance with no policy fees and the freedom to cancel anytime. Simple application process that can get you approved for coverage instantly.
21 - 54 years old
$50,000 to $1,000,000
No
Not available in Alaska or New York
Affordable 2-, 10- and 20-year term life insurance policies. Instant quotes and no medical exams.
25 - 60 years old
$100,000 to $5,000,000
No
Available in all states except for Montana
Offers term life insurance with accelerated underwriting. No-exam coverage up to $1,000,000 for those who qualify.
20 - 85 years old
$100,000 to $1,000,000
Depends on policy
All 50 states
Get a term or whole life insurance quote from Fidelity Life - starting as low as $15/day.

Compare up to 4 providers

Average term life insurance rates by age

Here’s the average monthly premium a 20-year term life policy would cost for both male and female applicants.

AgeCoverage amountMaleFemale
20$250,000$14.82$12.69
20$500,000$22.72$18.57
20$1,000,000$37.13$29.80
25$250,000$14.55$12.73
25$500,000$22.09$18.64
25$1,000,000$36.63$29.74
30$250,000$14.84$13.13
30$500,000$22.93$19.56
30$1,000,000$38.61$31.37
35$250,000$15.65$13.99
35$500,000$24.56$21.24
35$1,000,000$41.59$35.29
40$250,000$20.85$18.23
40$500,000$33.31$28.23
40$1,000,000$58.14$48.80
45$250,000$30.96$25.60
45$500,000$51.50$41.00
45$1,000,000$94.38$74.16
50$250,000$46.30$35.82
50$500,000$79.88$61.74
50$1,000,000$147.83$112.14
55$250,000$72.32$54.42
55$500,000$127.95$94.53
55$1,000,000$241.22$176.85
60$250,000$126.03$91.59
60$500,000$223.81$156.66
60$1,000,000$426.80$294.78
65$250,000$221.18$162.54
65$500,000$421.67$299.53
65$1,000,000$799.78$567.61
70$250,000$414.27$323.89
70$500,000$809.71$640.29
70$1,000,000$1,555.88$1,235.76


Prices shown in table are an average for non-smokers and should only be taken as a rough guide.

What happens if you stop paying your term life insurance premiums?

If you stop paying your premiums, your insurer will terminate your coverage. However, there’s a grace period for missed payments.

It varies by state, but insurers are legally required to give you around 30 days to make up a missed payment. During this time, your policy stays in force and if you die, your beneficiaries will receive the death benefit.

6 steps to get affordable term life insurance

  • Don’t buy the first policy offered. Shop around a bit and have a good look at what’s available. Check out any reviews you find online and when you get down to business, make sure you thoroughly read the terms and conditions.
  • Get an idea of how much coverage you actually need. Think about the people who are financially dependent on you and how much money would be needed for them to carry on without your income.
  • Quit smoking. Not smoking for at least 12 months will lead to lower premiums. If the insurance industry feels they have to charge you a lot more because of the risk of smoking, that should be a sign to quit for good.
  • Keep yourself fit and healthy. The less risk you pose to the insurance company, the less you’ll have to pay. If you’re seen to be knocking on death’s door, you’ll have to pay a substantial amount for coverage — you might even be declined.
  • Buy a policy while you’re still young. Age is as important to an insurance company as is your health and lifestyle. The longer you put off buying life insurance, the more you’ll have to pay.
  • Joint policies: Why not include your partner or spouse on your term life insurance policy? Not only will the both of you be covered, but you’ll also be eligible for discounts on your premiums.

More quick tips to save money on a policy

  • Consider whether graded or level premiums is better for your financial situation
  • Review your policy every 12 months to see if there is a more suitable/better priced option available.

What expenses can term life insurance cover?

When you die or if you become seriously injured, you want to make sure that you and your family can live life without having to worry about the burden of financial stress. Having a life insurance policy in place can help alleviate some pressure, here’s how:

  • Replace an income for your partner or family that would be lost if you were to die
  • Cover mortgage or rent
  • Assist in paying for your child’s education
  • Take care of other personal debts and taxes
  • Pay for childcare if your spouse has to return to work
  • Help with funeral costs and future financial planning
  • Keep up with everyday living expenses
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What are some drawbacks of term life insurance?

As with any insurance product, its tailored features can present certain disadvantages for people in certain circumstances. Make sure you’re aware of:

  • No cash value. One reason that term life insurance is cheaper than whole life insurance is that it doesn’t accumulate an investment portion. If you out live the term of your policy, your beneficiaries don’t receive any cash out or death benefit.
  • Rising costs that come with renewals. When the policy expires, you’ll need to take out a new policy to continue to be covered. However, since you’ll be older and may have seen other health and lifestyle changes, renewing your policy may be more expensive.
  • Your premium reflects your lifestyle choices. Your premiums will be based on the level of risk you present to your insurer. If you smoke, engage in high-risk activities or work in a dangerous occupation, you can expect to pay more than others.

See our comparison of term life vs whole life

Can I get coverage without having a medical exam?

Most life insurance companies will require you to complete a short medical questionnaire and if you meet their requirements, you may be approved for coverage without having a medical exam.

However, there are life insurance providers that specialize in insuring people who don’t want to take any sort of medical exam. It should be noted that these policies will be much pricier as the insurer is taking a risk on a person with an unknown medical background.

How do I compare policies?

Here are some key things to look out for if you’re ready to start comparing policies.

  • Compare multiple policies. The rates offered shouldn’t be the only factor to consider when making a decision. Look for a policy that’s affordable and flexible, and offers built-in features and benefits.
  • Check out the extras. Make sure that any extras purchased match your needs. The last thing you want is to be paying a higher premium for features you won’t use.
  • Ability to bundle coverage? Find out if it’s possible to bundle your term life coverage with other types of living insurance.
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Bottom Line

Term life insurance offers predictable payments and protection for a set period of time. For these reasons, it’s ideal for those who have a specific need for life insurance and want cheaper coverage. But it doesn’t have a cash value, so if you survive the policy, you won’t get any money.

Before buying a policy, be sure to compare providers and policy features.

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