How Long Should Term Life Insurance Last? A Comprehensive Guide

Term life insurance is for a specific coverage amount for a specific number of years, with the most common term lengths being between 10 and 30 years. In certain situations, some companies will offer a life insurance term length as long as 40 years. It is also possible to get short-term policies, and some of these may not require a medical exam.

When the insured person dies in that time period and the premium payments are current, the insurance company will pay the face value of that policy, also called the death benefit, to the beneficiaries named in the policy. When the policy period ends, the policy is no longer in force.

Term life insurance rates are the lowest of any type of life insurance, making these policies popular with younger people and budget-conscious families. The best term life insurance policies allow you to add additional financial protection coverage after the initial purchase or convert to a permanent insurance policy such as whole life that will provide coverage for your entire life. Employer-based life insurance is typically term insurance.

Many factors go into the decision of how long you will need insurance, and most of those factors fall under four broad categories.

1. Financial obligations: Go through an exercise to evaluate your current and future financial obligations. This includes major outstanding debts such as mortgages, student loans or credit card balances. Then, do a realistic assessment of the time it will take to repay these debts.
2. Family situation: Consider your current situation. Is your spouse working? What is your expected retirement age? What are the costs of education for your children? For example, if you have young children, you may want a length that covers their dependent years and possibly extends until their education is complete, including college and beyond.
3. Long-term goals. Assess your goals, such as a child’s college education, and make sure your timeframe matches with what you expect your child will need.
4. Affordability: After all this work, the big question is, what level of insurance premiums can you afford? If finances are tight but life insurance is a priority, then you should look at your budget to determine where cuts can be made. Longer-term life insurance policies tend to have higher premiums primarily because the insurance company is taking a bigger risk to cover you for a longer period of time. Work with a licensed insurance agent to possibly start with a shorter term in the beginning that is more affordable, with a plan to increase coverage when you are better able to afford it. This is called laddering. But keep in mind you will likely pay more as you get older.

This process of assessing your needs may require help from a financial advisor.

Shorter-term life insurance policies — those from 10 to 15 years — offer advantages and disadvantages:

Pros

• Affordability. Because life insurance companies determine that their risk is lessened with shorter-term policies, the policies are often less expensive. A 10-year term policy will be cheaper than a 20-year term life insurance policy.
• Flexibility. If the big events and needs of your life will ebb and flow over a longer period of time, the flexibility of having several shorter-term policies allows you the opportunity to re-evaluate your needs and adjust your insurance accordingly. But your life insurance cost will likely go up as you get older.
• Timing. If you are shedding some big financial obligations, such as loans being paid off or education expenses, then a shorter-level term policy could be the right solution for you.

Cons

• Renewal complexities. While the insurance industry considers five or 10 years a short period of time from a business perspective, we as consumers know a lot can happen in that time period. For example, let’s say you take out a 15-year policy to cover a mortgage and a child’s college education. As you near the end of the 15-year term, your child decides on a career that will require several more years of education. Unfortunately, during those 15 years, you experienced health issues that could impact your ability to either renew or get a new policy. At a minimum, the new policy could be significantly more expensive, and your options may be limited to a few insurance companies.
• No cash value. Unlike permanent life insurance, term life insurance builds no cash value. Your regular premium pays only for the insurance.

There are many reasons why an individual or a family would consider term life insurance for a period of 20, 30 or more years.

• Financial obligations. This is one of the most common reasons people choose a longer term, and it could pay for things like your mortgage payment and other large debts.
• Dependent support and care. With the cost of raising a child to age 17 being several hundred thousand dollars, long-term life insurance is often one of the core tools families use in long-term planning.
• Business planning. Many businesses use longer-term life insurance as a financial bridge in the event a key employee dies.
• Estate planning. Life insurance is often used by higher net-worth families to pay estate taxes and manage potential inequity in inheritances among family members.
• Income support for spouse or partner. Life insurance is often a vehicle to provide ongoing financial support to replace the lost income of the policyholder.

There are many other reasons why longer-term life insurance could be a good option for individuals and families. We recommend working with a financial advisor to discuss the life insurance options available to you.

Pros

• Extended coverage. If your financial obligations will stretch over a long period of time, then this approach may be best. One of the most common reasons is to ensure family members and loved ones are cared for, and that may include family members with special needs that require ongoing care. All things being equal, a 20-year term policy will cost less than a 30-year term life insurance policy.
• Accounting for the unexpected. As your life situation changes in ways you might not have predicted, having longer-term coverage will help cover these expenses, such as starting a business or having more children.
• Predictable costs. There is financial stability because you will be paying level premiums throughout the life of the policy.
• Peace of mind. Many people feel more at ease knowing their family is financially protected for a longer period of time.

Cons

• Higher cost. In return for you getting level premiums for the life of the policy, life insurance companies will charge more.
• Plans change. At some point during the term, you may find that what you planned for life insurance to cover is no longer there. Maybe you paid the house off sooner than expected, and now you are paying for more insurance than you need.
• Lack of flexibility. The commitment to life insurance over a longer period may prevent you from investing in other financial priorities, such as saving for retirement or pursuing other investments.

Understanding the pros and cons of different term lengths will help you make the right call for you and your family’s needs.

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Evaluating your needs at least once a year can help ensure that you have the right amount of life insurance coverage. Here are some of the most important components of this evaluation:

• Life events. Things change with families, sometimes in big, unexpected ways. As new parents, maybe you determined you only wanted one child, but now you have decided to have a second child. Or, maybe you decide to finally start that business. These can have major implications on your life insurance needs.
• Financial growth. Have you generated the growth you planned for? Are your assets in a position where they can take on some of the planning responsibility that you currently cover with life insurance?
• Debts. Have you taken on any new, significant debts that would outstrip your current life insurance coverage?
• Health. Has your health changed? If it has worsened, then you may want to speak with a financial advisor to determine if the structure of your life insurance adequately meets your needs. You may want to consider converting some of the term life insurance to permanent life insurance. If you are lucky enough to be in good health, then you will find more options available.

Many insurance companies have term life insurance products that can be either renewed or converted to a type of permanent life insurance, such as whole life insurance, at the end of the term. If you are considering converting to whole life, see our choices for the best whole life insurance company.

Whether you plan to renew or convert, be prepared for potential sticker shock. Let’s look at the options.

Renewal of your term policy. Renewing a term life policy after it expires will likely be more expensive because it will be based on your current age and health. If your health has worsened, then expect even higher premiums. You will be asked questions about your current health, and you may be asked to take a medical exam. You can consider a no-exam insurance policy, but it will likely have lower face amounts.

Converting to permanent insurance. This is an excellent option if you want to have life insurance for the remainder of your life, or for a period longer than what you can get with term insurance. You will likely face significantly higher premiums converting to a permanent life insurance policy, so work closely with a licensed agent to understand your options relative to your needs and priorities.

Apply for a new policy. If your health has improved over the term of your life insurance policy, it may be worth exploring a new policy. You will have to go through the same application and underwriting processes, but you may find options that work for you.

There is no one-size-fits-all approach to determining how much term life insurance you need and how long you need it.

Term life insurance can be a good option if you have specific needs for a specific period of time, such as a child’s education or a mortgage. During that time period, you will undoubtedly experience changes you didn’t expect, sometimes as big as having another child or additional significant health care expenses. It’s important to consider this in your initial assessment process so you have enough life insurance to cover the unexpected.

As you go through the process of assessing the purchase of term life insurance, we recommend working with a financial advisor and a licensed life insurance agent to help you understand the options available. We also suggest getting several life insurance quotes from some of the best life insurance providers to find the right coverage.