Term life insurance, without the sales pitch

At a glance

What it is

Life insurance for a set period: 10, 15, 20, 25 or 30 years

Who it is for

People with a mortgage, children, or income others depend on

Price

Usually the lowest cost per dollar of coverage while the term runs

After the term

Coverage ends, renews at a much higher price, or converts to permanent coverage if the policy allows

How term life insurance works

You choose an amount and a term. If you die during the term, the insurer pays the amount to your beneficiary, generally free of federal income tax. If you outlive the term, the coverage ends; there is no cash value. That simplicity is why term is usually the least expensive way to cover a large need for a defined stretch of years, such as until the mortgage is paid or the children are through school.

Choosing an amount and a term

A common approach is to add up what you want covered (remaining mortgage, years of income to replace, education, final costs), subtract what you already have (savings, employer coverage, Social Security survivor benefits where they apply), and match the term to the longest obligation. Someone with a 27-year mortgage and a toddler often looks at 30 years; someone five years from paying off the house may look at 10.

Level term, return of premium and conversion

Level term keeps the premium and the death benefit flat for the whole term. Return-of-premium term refunds premiums if you outlive the term, at a noticeably higher cost. Many term policies include a conversion privilege that lets you switch to a permanent policy without new health questions within a window. Ask what the window is before you buy; it matters if your health changes.

Why coverage through work is usually not enough

Employer group life is typically one or two times salary, is not portable when you leave, and can end at retirement. It is a helpful base, not a plan. An individual policy you own goes with you between jobs and can be sized to the actual need rather than to a benefit formula.