The Definitive Guide to Term Life Insurance

If something happened to you tomorrow, would your family be able to pay the mortgage and cover daily bills? It’s a heavy question, but finding peace of mind often has a surprisingly simple answer: term life insurance.

Many people assume this protection is expensive, but industry data from organizations like LIMRA shows that most individuals overestimate the cost by three times or more. This coverage is often more affordable than a few monthly streaming subscriptions and is simpler to understand than you think.

Term Life Insurance: Think “Renting” Protection, Not “Buying” an Investment

Term life insurance is temporary coverage for a specific period, or “term,” such as 20 or 30 years. It is designed to protect your family when they need it most, like when your children are young or you have a large mortgage.

Think of it like renting an apartment versus buying a house. Term life is the renter: affordable, straightforward protection for a fixed period. In contrast, permanent policies like whole life are like owning: a lifelong commitment that costs much more because they include an investment component that most families do not need.

Because you are only paying for protection, not investment features, term life is the most affordable way to secure a large death benefit. Your entire policy is defined by just three numbers.

The 3 Simple Numbers That Define Your Policy

Death Benefit: The tax-free amount of money your family receives if you pass away while the policy is active. This is the financial safety net you are building.

Term Length: How long your coverage lasts. Many people match this to their biggest responsibility, such as a 30-year mortgage or the years until their children are financially independent.

Premium: The fixed monthly or yearly payment to keep the policy active. For example, a healthy 35-year-old might pay about $30 per month for a $500,000 policy lasting 20 years.

How Much Life Insurance Do I Actually Need?

A common rule of thumb is to start with 10 times your annual income. If you earn $60,000 per year, a $600,000 policy is a solid starting point. This is meant to give your family time to adjust financially without the pressure of replacing your income immediately.

For a more personalized estimate, use the D.I.M.E. method:

Debt: Credit cards, car loans, and other non-mortgage debts
Income: How many years of income you want to replace
Mortgage: Enough to pay off the home
Education: Future college costs for children

Add these together to reach your target. For example, a $250,000 mortgage + $200,000 income replacement + $100,000 education equals about $550,000 in coverage.

What Does a $500,000 Policy Actually Cost?

Term life insurance is built to be affordable, and your price depends mostly on your age and health. Younger, healthier applicants are considered lower risk and usually pay less.

A healthy, non-smoking 35-year-old can often find a 20-year, $500,000 policy for about $25 to $35 per month. The insurer confirms your health details during the application process to lock in the final rate.

The Application Process: What to Expect

After you apply, the company reviews your information through underwriting. This includes verifying your answers and checking certain public and medical records to confirm accuracy.

Many policies include a short, free medical exam. A technician may come to your home or office to check height, weight, blood pressure, and collect a small sample. This helps insurers offer the lowest possible price.

If you prefer not to take an exam, many companies offer no-medical-exam policies. These are faster and fully online, though they may cost slightly more because the insurer has less health information.

What Happens When a Term Policy Expires?

When your term ends, you have three main options:

Let it expire if you no longer need coverage
Convert it to a permanent policy without another medical exam (if available)
Renew it yearly, usually at a much higher cost

Many people let the policy expire once their mortgage is paid off and their children are financially independent. If your health changes over time, having the option to convert can be a valuable safety net.