Term life insurance

How term life works

You pick a death benefit and a number of years. For those years you pay a fixed premium and, if you die, the carrier pays the benefit. At the end of the term the contract simply ends. You do not get your premiums back, and that is precisely why it is cheap: the insurer prices for the low probability that a healthy 35-year-old dies before 55.

Around 20 to 30 per cent of the US individual life market by policy count is term, and it accounts for the large majority of the coverage amount sold, because it is where people buy serious death benefits.

Choosing the term length

The question is not “how long do I want cover” but “when does the financial obligation end”. Work backwards from the obligation:

• A 30-year mortgage taken at 32 → a 30-year term. It expires as the last payment clears.
• A newborn → roughly 22 years until they finish education and become independent. A 20- or 25-year term.
• A spouse 12 years from retirement → a 15-year term bridging to the point where retirement assets take over.

Buying a term that is too short is the more expensive error of the two. A 10-year policy bought at 40 expires at 50, and the replacement is bought at 50-year-old rates — roughly double, if your health has held. Buying a term slightly longer than you need costs a few dollars a month; buying one too short can cost you the ability to be insured at all.

What term life costs

Average monthly premium for a 20-year, $500,000 policy, non-smoker:

Source: MoneyGeek, 20-Year Term Life Insurance Rates, published 28 August 2026 — an average of 248,399 quotes from 20 major insurers for a non-smoker of average build and health. Source. Market averages, not quotes.

At $250,000 the same 20-year policy averages $35 a month for a 40-year-old man and $28 for a woman; at $1 million it averages $109 and $86 (MoneyGeek, 28 August 2026). Notice that doubling the death benefit does not double the price — a large part of the premium is fixed policy cost, so bigger policies are better value per dollar of cover. Many people who baulk at $1 million have not checked how little the step up from $500,000 actually costs.

Full cost tables, including smoker rates and every face amount.

Level, decreasing and renewable

Level term keeps both the premium and the death benefit constant for the whole term. This is what most people mean by term life and what you should normally buy.

Decreasing term reduces the death benefit over time, usually to track a mortgage balance. It is sometimes sold as mortgage protection insurance. It is cheaper, but the benefit is often paid to the lender rather than your family, and level term at the same premium frequently buys more useful cover.

Annual renewable term is a one-year policy that renews automatically at a higher price each year. The first-year premium looks attractive and the tenth-year premium rarely does. If a quote is startlingly cheap, check which of these three you are looking at.

The conversion option

Most level term policies include a conversion privilege: within a defined window — often the first 10 years, or up to a stated age — you may convert some or all of the policy to permanent cover from the same carrier without answering any new health questions.

That matters because it is insurance against becoming uninsurable. If you are diagnosed with something serious at 45, your term policy still ends on schedule and no carrier will write you a new one — but the conversion option lets you move to lifelong cover regardless. Conversion terms differ sharply between carriers, and the difference is invisible in a price comparison. It is one of the few places where asking an agent a specific question pays for itself.

What happens at the end of the term

Three doors. The policy simply ends and you stop paying, which is the right outcome if the need ended too. Or you let it renew annually at a steeply rising premium, which buys time but is not a plan. Or you convert, if the option is still open.

The one thing worth doing is deciding deliberately rather than letting a policy lapse in the month you discover you still needed it. Put the expiry date somewhere you will see it a year in advance.

Frequently asked questions

Do I get my money back at the end?

Not with a standard term policy. A variant called return of premium term refunds your premiums if you outlive the term, but it costs substantially more each month — enough that investing the difference usually leaves you ahead. Treat it as a savings product with an insurance wrapper and price it as one.

Can I have more than one term policy?

Yes, and stacking, or laddering, is a sensible strategy: a 30-year policy covering the mortgage plus a 20-year policy covering the child-rearing years, so total cover steps down as obligations fall away. You pay less than you would for one large 30-year policy.

What if I move or change jobs?

An individual term policy belongs to you, not to your employer or your address. It follows you across jobs and states. This is the central advantage over employer-provided group cover, which ends when the job does.

Is the premium really fixed?

On a level term policy, yes, for the whole term — that is guaranteed in the contract. Be careful with quotes that separate a low guaranteed period from a longer term, and with annual renewable term, where the premium rises every single year.

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