Choosing the right length for a term life insurance policy can have an outsized impact on the value it offers you and your family. As it stands, term life insurance remains one of the best dollar-for-dollar deals when it comes to protecting your family’s financial future in the event of your death. With monthly term life premiums as low as 15 dollars per month, choosing the right term length may seem insignificant. Every family has different needs and finding the sweet spot between a 10-year, 15-year, 20-year, and 30-year term policy is all about where you are at in your life today. Let’s help you decide!
In this article:
A quick explanation of term life insurance
A basic term life insurance policy consists of three components:
- The length of the term represents the number of years that you will be protected. Common term lengths are 5-year, 10-year, 15-year, 20-year, and 30-year terms.
- The value of the policy represents the amount of death benefit that is paid to your beneficiaries if you pass away during the term length.
- Your monthly premium is the amount you pay each month in order to keep the policy active.
For example, let’s say that you purchased a $500,000 term life policy for a 20-year term with a $19 dollar monthly premium. If during the 20-year term, you passed away, then your beneficiaries would receive $500,000 tax-free dollars.
Term life insurance with no medical exam
Thanks to modern medical underwriting, it is now possible to apply for a term life policy (yes even 20-year and 30-year term policies) without submitting to a medical examination! In fact, you can apply and be approved for a term life policy without leaving your computer screen.
In the past, applying for a term life policy involved sharing your medical records, showing up to a lab for a health examination, submitting urine samples, and waiting for weeks to find out if you were approved or not. Today, technology has allowed advanced algorithms to greatly simplify this process.
In many cases, you can apply online and find out if you are approved within 10 minutes. Once approved, you can purchase your policy and be insured immediately. You can even do it here at insuresimpli.com. Of course, we are always available to talk to you on the phone or over email if you have any questions or are in need of some guidance on which term policies are the best fit for you.
Should I choose a 20-year term or a 30-year term?
If you are looking for long-term coverage beyond 15 years, you could instead select a 20 or 30-year term policy. Deciding between the two really comes down to where you are at in your life and why you want the coverage in the first place.
20-year Term Life Policy Pros and Cons
Let’s start off with the price. The biggest difference between a 20-year term and a 30-year term is the cost of monthly premiums. A 30-year term can cost 50% more than a 20-year term. So a healthy 30-year-old, non-smoker would pay $19 dollars per month for a 20-year, $500,000 dollar policy. That same 30-year-old would pay close to $29.88 for a 30-year term. So as far as price is concerned, it’s 20-year term for the win.
20 years is also an amount of time that can carry a person through particular life events. If you have small children and want to make sure that they are taken care of until they are on their own and financially stable then you might choose a 20-year-term policy. This will ensure that they will be financially sound through adulthood should anything happen to you. If your child is 9, a 20-year term would see them to 29 through their first car, college, their first apartment, etc. until they have established themselves.
30-year Term Life Policy Pros and Cons
We’ve already mentioned that a 30-year term life policy costs significantly more than a 20-year term. Beyond that, however, there is a strong argument to be made for its usefulness. A 30-year term could cover you until you retire. While it is not a permanent life insurance policy, it is a close second in terms of ensuring that your family is protected until you reach a point of financial stability yourself.
Another advantage is that as you age, you are more likely to encounter health problems that may hinder your ability to obtain life insurance later on. The extra decade that a 30-year term offers means you will still be paying your reasonable premiums even if you develop a chronic illness during your term. The older you are when you purchase life insurance, the more expensive your premiums will be. At the end of the 20-year term, the 30-year old will be 50. The premium cost of purchasing another term policy at 50 years old significantly offsets the difference in price between 30-year term and 20-year term insurance.
Cost: 20-year term vs 30-year term life policy
|Age||20-year Premium/Male||20-year Premium/Female||30-year Premium/Male||30-year Premium/Female|
What if I outlive my term life insurance?
Using our example above, if you live beyond the 20-year term, your policy would be over. To maintain coverage, you would either need to purchase more life insurance (at an increased cost, given you are older) or you would need to convert your term policy into a permanent policy.
It is worth noting that without a return of premium insurance rider, the $19 dollars per month that you pay is not refundable. It is the cost to maintain the insurance through the term. This is also one of the reasons that term life insurance is so affordable. However, even in this case, the numbers for term life insurance policies are very favorable.
In this case, for less than $238 dollars per year, your family is financially protected should something happen to you. If you live through your term, after 20 years you would have paid a total of $4,560 dollars for $500,000 dollars worth of protection. That’s a fair deal for the peace of knowing that the people you love will be financially sound in your absence.
How much term life insurance should you purchase?
Term life insurance has many options when it comes to how much coverage you want to buy. You can purchase as little as $5,000 or as much a $1 million or more. How much you need should depend on your income, your family’s needs, and your expenses. You will want to take the time to really consider what losing your income would mean to your family. You will need to replace that income for them should anything happen to you. Consider the number of years that they will need that income and use it as a starting point for deciding how much coverage you need. From there, consider adding in:
- Your children’s future or current tuition for college, trade schools, and other educational needs
- The amount of money you owe on your mortgage. If you are renting, add in the number of years of rent you would need to replace
- Outstanding debts that they will have to pay
You can now take this list and choose to subtract your savings and assets. The number you are left with is the minimum coverage you will need to adequately protect your family’s financial future.
How do life insurance health ratings affect your monthly premium?
Health ratings are a metric used by insurers to assess your current state of health. This allows them to calculate the risk of the policy they are offering to you. Understandably, it also affects the price that you will pay for your policy. People in better health are at less risk of passing away during their policy and enjoy lower monthly premiums as a result. For a deeper understanding of life insurance health ratings and classifications, take a look at this article.
The difference between a person in great health and a person in average health can mean as much as a 50% difference in the price of a policy. People who smoke can expect even higher premiums. Age, weight, height, gender, health conditions, and family medical history are all just a part of what goes into determining your health rating. Even so, rates for standard health (which is the rating of the majority of people) are an excellent value for term life insurance.
Final thoughts on 20-year and 30-year term life policies
Both policies offer an excellent value of premium dollars to death benefit. They also will both give you and your family peace of mind for decades to come. There is a benefit to having an extra 10 years of protection locked in at a low premium that the 30-year term offers. However, for people in a different stage of their life, the 20-year term might make more sense financially. When it comes to life insurance, the only dangerous choice is not to have any at all.
If you have any questions or would like assistance in deciding how to best cover your family’s future, we are happy to help you decide the best way to meet that goal. Feel free to check out our calculators to help get a better idea of what your coverage options are for different term lengths or you can give us a call. We pride ourselves on presenting people with every option available to them in a straightforward, honest consultation.