What is Term Life Insurance?Term life insurance is a broad category that covers life insurance policies that last for a certain period of time. Term lengths typically include 10, 15, 20, 25, and 30 years, though some insurance carriers will offer policies as short as 5 years or as long as 40. The latter two are rare, however. The most common term policies fall between 10 and 30 years, and they are designed with one purpose in mind: to provide financial coverage to your loved ones should you die during that specific time period. Term life insurance is usually compared to the second main type of life insurance: permanent. Permanent life insurance is another broad category that includes several types of policies. The most popular is whole life insurance, but there are plenty of others, including universal, variable, variable universal, and more. While each type of permanent life insurance has its own unique characteristics and advantages, they all have two things in common:
Lifetime coverage: Unlike term life insurance, which expires after a specific time period, permanent life insurance never expires. Once you buy a policy, youre covered for life.
Cash value: Term life insurance is known as pure life insurance because its only function is to provide a death benefit to the beneficiaries of a given policy. Permanent life insurance, on the other hand, is more complex. It offers a death benefit AND a cash value component that allows you to accumulate cash over the lifetime of your policy. The accumulated cash can be used to secure a loan, pay monthly premiums, or cover the cost of unexpected expenses that arise during your lifetime. The two bonus components of permanent life insurance mean that it will always be more expensive than term.
How Term Life Insurance Works
Before buying term life insurance, you need to decide how long of a term you need. There is no cut and dry answer regarding which term length is bestits a highly individual decision based on personal finances, family life, and other factors.
Once you decide how long you want your term policy to last, you must fill out an application that includes detailed questions about your health. Most policies also require you to undergo a medical exam as part of the application process. The cost of the exam is covered by the insurer and takes place at the location of your choosing (usually at work or home).
The health questions on the written application and the medical exam are designed to give the insurer as much information about your health condition as possible. Health plays a crucial role in determining your approval or rejection and how much you pay in monthly premiums.
The general rule of thumb is that the healthier you are, the lower your premiums. Conversely, the more health problems you have, the higher your premiums. In some cases, you may have such severe health issues that the insurer deems you too risky to insure and rejects your application.
If your application is approved, your coverage can start from the moment you sign the policy. You then start paying monthly premiums, and in return, the insurer commits to paying out a death benefit if you die during that period. Its crucial that you pay your monthly premiums on time in order to maintain a valid policy. If you let the monthly payments slide, your loved ones may not have the coverage they need.
What Are Your Options When Your Term Policy Expires?
When your term policy expires, you have several options: renew the policy, convert it to a permanent policy, or do nothing. The first two options allow you to continue your coverage and usually dont require you to undergo a new medical exam, which is a big advantage. However, life insurance underwriters will calculate new rates for your policy based on your current age, and rates go up with every passing year.
Lets say you bought a 10-year term life insurance policy at age 35. At that age, you were in excellent health and were given very low rates. 10 years down the road, your policy expires, but you still have young kids/loans/other responsibilities and need coverage. You can renew your term policy, which will still consider you in great health, but youll now be charged the rates of a 45-year-old instead of a 35-year-old. Alternatively, you can convert the term policy to a permanent one, for which youll also be charged the rates for a 45-year-old, plus have all the additional expenses that come with a permanent policy.
Since renewing/converting term life insurance policies can be expensive, we recommend trying to get a sufficiently long term on your first try. While its impossible to predict the future, getting enough coverage the first time will ultimately save you money in the long run.
What is a 30-Year Term Life Insurance Policy?
A 30-year term life insurance policy is exactly what it sounds like: a term policy that lasts 30 years. Its one of the longest term lengths available, often cited as the closest option to a permanent policy, but at a fraction of the cost. Like other term life insurance, a 30-year policy offers level premiums and a death benefit to your beneficiaries thats usually paid out tax-free.
30-year term life insurance is designed to give decades of coverage, usually during the years when people are raising families and working. When a 30-year policy expires, you technically have the option to renew or convert it, but by that age, those may not be practical options. Remember, youll be 30 years older than when you first bought the policy, so your new rates will be calculated based on your current age (and hence, much higher).
Advantages of a 30-Year Term Policy
30-year life insurance offers peace of mind knowing that, if you die during that time period, your loved ones wont be burdened by financial hardships. Your policys death benefit can cover any outstanding debt or financial obligations, including a mortgage, the cost of college and/or weddings, daily expenses, lost income, and more.
When compared to other term policies, 30 years is at the more expensive end of the spectrum. This is because of the way life insurance rates are calculatedthe longer the term, the more expensive the policy. However, a 30-year term policy is less expensive than a permanent one. People who need coverage for a long time often choose this option to avoid the higher rates of permanent life insurance.
And while a 30-year policy may seem more expensive than a shorter term policy, in the long run it can end up being less expensive. If you buy a shorter policy and then discover that you still need coverage once it expires, youll need to renew your policy or convert it to a permanent one. At that point, youll be charged higher rates than you had with your original policy since youll be x amount of years older. The renewed/new policy can end up costing more than if you would have bought a 30-year policy in the first place.
Who Needs a 30-Year Term Policy?
30-year life insurance can be ideal for many different types of people in different situations. Some of these situations include:
If youre young and planning on starting a family
If youre in your 20s or 30s and already have a family or are planning to start a family, 30-year term life insurance can get you through the years when youre raising young children who are financially dependent on you. Plus, it will last you until those children attend college and possibly until they get married and start families of their own.
Most people expect that by the age they reach retirement, their children will no longer be financially dependent on them, and therefore, a 30-year policy is enough (as opposed to a permanent policy). Also, a 30-year policy is much more affordable, and therefore, more realistic if youre in your 20s or 30s and cant afford to pay the high cost of permanent life insurance.
If you have a mortgage or other outstanding debt
If you have a 25- or 30-year mortgage, 30-year life insurance will ensure that your debt doesnt get passed on to your loved ones if you die before its paid off. If you die toward the end of your policy, when most of the debt has already been paid off, your beneficiaries can use the remainder of the death benefit for any purpose they see fit.
If you dont want to take a risk
The purpose of life insurance is to provide financial coverage to your loved ones if youre no longer alive. For every individual, financial coverage can mean something else. For some, it means making sure they can pay for their childs college education. For others, it means providing enough money to replace lost income or to cover debt. And yet others may simply want to leave behind an inheritance.
Whatever your reason, many people are afraid to buy a term policy that will end up being too short for their needs. 20-year and even 25-year policies may fall short of the desired goal, and then the entire purpose of life insurance is defeated. For people who dont want to risk buying too short of a term, 30-year life insurance offers affordable coverage and peace of mind.
How Much Does a 30-Year Term Life Insurance Policy Cost?
To get an idea of how much you can expect to pay for 30-year term life insurance, check out the table below. These are the average rates for a 30-year, $500,000 term policy for relatively healthy male and female non-smokers in New York.
Age of Male Non-Smoker Average Cost of Life Insurance20 $36-$46/month30 $39-$49/month40 $60-$87/month50 $153-$219/month Age of Female Non-Smoker Average Cost of Life Insurance20 $27-$40/month30 $31-$44/month40 $48-$68/month50 $112-$153/month
As you can see, if you buy a 30-year term policy when youre in your 20s, 30s, and even 40s, the prices are fairly low. Once you get to your 50s, the prices jump drastically. By the time you reach 60, you wont be able to purchase a 30-year policy.
While you would still be paying more for a 30-term policy than a 20- or 25-year policy, the benefit is that you dont have to worry about your coverage expiring while you still need it. If a shorter term policy expires and you need to renew, youll do so at higher rates.
If you want to see how much you can expect to pay given your own personal situation, you can use Sproutts instant quote calculator.
20-Year vs. 30-Year Term Life Insurance
Both 20-year and 30-year policies are popular choices when it comes to term life insurance, but how can you decide which one is right for you?
Most people choose the length of their term based on milestones theyd like to reach and how long it will take to reach them.
For example, if you want life insurance to last until you pay off your mortgage, the length of the term you choose will depend on how long the mortgage is. If you want life insurance to ensure that your child will have money to pay for college, you need a policy that will last until that child reaches college-age. The length of the policy will depend on how old your child is when you buy it. If your child is a newborn, youll need at least a 25-year policy. If your child is 5, youll need a 20-year policy.
In cases that you have a specific goal thats within a 20-year reach, choosing a 20-year term policy will be sufficient for your needs. While you can choose a 30-year policy to be on the safe side, the reason for NOT doing this is that 30-year policies are more expensive than 20-year policies.
Take a look at these rates:
Male Non-Smokers 20-Year vs. 30-Year $500,000 TermMale Non-Smokers Average Cost of 20-Year Life Insurance Average Cost of 30-Year Life Insurance20 $25-$31/month $36-$46/month30 $35-$44/month $39-$49/month40 $36-$49/month $60-$87/month50 $86-$119/month $153-$219/month Female Non-Smokers 20-Year vs. 30-Year $500,000 TermFemale Non-smokers Average Cost of 20-Year Life Insurance Average Cost of Life Insurance20 $19-$26/month $27-$40/month30 $20-$27/month $31-$44/month40 $30-$40/month $48-$68/month50 $67-$85/month $112-$153/month
As you can see, 30-year life insurance is more expensive than 20-year life insurance. While the difference in monthly premiums may only be $10 or $20 when youre in your 20s or 30s, as you get older the difference becomes more pronounced. Moreover, you have to remember that its not just a one-off price difference, but an extra $10+ dollars youll be spending each month for 20 or 30 years. That can add up to a significant amount.
The higher cost of 30-year life insurance doesnt mean you shouldnt buy it. It just means that you should make sure you need it. If a 20-year policy wont suffice to get you past certain milestones, or wont give you the peace of mind you need, a 30-year policy is the better option. If you think that a 20-year policy is enough, then you should choose that and enjoy regular savings in monthly premiums.
What Factors Affect the Cost/Rates of Life Insurance? Many factors affect the cost of life insurance. Some of these are related to the policy itself type, policy length, coverage amount, and more. Other factors are related to your life expectancy, like age, gender, health, smoking status, and more. Below is a list of factors that affect the cost of life insurance:
Age - The younger you are, the lower your rates will be.
Gender - Women always pay less than men since they have a higher statistical life expectancy.
Smoking status - Smokers always get higher rates than non-smokers since smoking significantly lowers life expectancy.
Health - Health is a major determining factor of your life expectancy. The healthier you are, the lower your rates will be (and vice versa).
Lifestyle - If you have a dangerous job or hobbies that can affect your life expectancy, your insurance rates will go up. Conversely, if you lead an active lifestyle, dont drink alcohol or do drugs, your rates can go down. If you have any recent DUIs, you may be denied coverage altogether.
Location - The cost of life insurance policies differ by state.
Policy length - The longer your policy, the more expensive it will be.
Type of policy (term, permanent, no exam) - Term is considered the most affordable type of life insurance. Permanent life insurance is more expensive since there is no expiration and it can accumulate cash value. No exam life insurance is another type of policy that doesnt require you to undergo a medical exam to get coverage. For this convenience, the price is usually higher than that of traditional term life insurance. However, it can be an invaluable option for people with serious health issues or those who need life insurance quickly.
Coverage amount - The higher your coverage, the more expensive your policy will be.
Additional riders - If you add a rider to your policy, the cost will go up. Popular riders include Disability, Accelerated Benefit, Long-Term Care, and Waiver of Premium. While the cost of your policy will go up, the benefit may be worthwhile in the long run.
Insurance company - You will very likely get different quotes from different insurance companies, which is why it pays to shop around. Sproutt automatically rounds up the best rates from different companies so you can get the best deal.