The short answer
This guide answers the most common questions about is term life insurance worth it.
Too little coverage leaves your family short. Too much costs money every month. The right amount sits in between, and you can find it with a short checklist.
Here is how to work out how much term life insurance you need.
Part of our complete guide: Term Life Insurance: The Complete Guide.
Quick answer
Count debts, the mortgage, years of income and future costs. Subtract savings and existing coverage, including group life at work. Use separate policies if needs end at different times.
MarketView Agency is an independent insurance agency (National Producer Number 18345705).
On this page
- Is term life insurance worth it?
- Term life coverage amount: what sets your term life rate
- How life insurance is taxed
- Sizing term life coverage: what happens when term life expires?
- Questions to answer before you decide
- A worked example
- Add-ons (riders) that can help
- Is term life right for you?
- Frequently asked questions
Is term life insurance worth it?
For parents, term life insurance answers one question: if my income stopped, how would my family keep going? The policy can pay the mortgage, daily costs, child care and future school costs.
- Cover both parents, including a stay-at-home parent. Replacing child care and household work costs real money.
- Pick a term that lasts until the youngest child is on their own.
- Name a trust or custodian for minor children rather than naming them directly.
Term life coverage amount: what sets your term life rate
Term life pricing comes down to risk and time. Your age, health and habits describe the risk. The amount and term describe how much and how long the insurer is on the hook.
Two practical tips: buy when you are younger, and compare carriers. Insurers judge the same health history differently, and that can move your rate class.
Compare rates from several carriers in about two minutes. Free, no obligation.
How life insurance is taxed
Life insurance death benefits are generally income-tax-free to the beneficiary. That is one reason life insurance works well for a goal like paying off a mortgage: the amount your family receives is generally the amount they can use.
There are exceptions. Interest paid on a benefit that is held and paid out over time can be taxable. Very large estates can owe estate tax, and a policy you own counts toward your estate. Policies that were sold or transferred for value can also lose some of the tax benefit.
Tax rules change and every situation is different. For anything beyond the basics, talk with a tax professional. We can explain how a policy works, but we do not give tax or legal advice.
Sizing term life coverage: what happens when term life expires?
Outliving your term is the good outcome. It usually means the mortgage is paid and the children are grown. If you still need coverage, plan a year or two before the end date so you have time to convert or compare.
Questions to answer before you decide
- Who would struggle financially if your income stopped?
- How much do you owe, and for how many more years?
- Do you already have coverage through work, and would it follow you if you left?
- What monthly amount fits your budget comfortably?
How to get covered in 3 steps
- Check your rate. Pick your state and answer a few quick questions about the coverage you want.
- Compare carriers. A licensed agent compares term life insurance options from several insurers and explains the trade-offs.
- Apply and get covered. Many applications take one phone call. Coverage starts once the policy is issued and the first premium is paid.
A worked example
Say you're 34 with a $150,000 mortgage balance and 16 years left, $19,000 in other debts, and an income of $55,000. Here's one simple way to size coverage:
| Item | Amount |
|---|---|
| Mortgage balance | $150,000 |
| Other debts | $19,000 |
| 4 years of income | $220,000 |
| Total to consider | $389,000 |
In this example, a 20-year term would outlast the loan (it ends around age 54). Your own numbers will differ; use this as a starting point and adjust for savings, other coverage and future costs like school.
Add-ons (riders) that can help
A rider is an option you add to a policy. Some are built in at no extra cost, others add to the premium. Availability and terms vary by carrier and state, so check the details of any policy you consider.
- Accelerated death benefit. Lets you access part of the benefit early if you are diagnosed with a terminal illness, and on some policies a chronic or critical illness.
- Waiver of premium. Keeps the policy in force without payments if you become totally disabled, as defined in the policy.
- Return of premium. Refunds premiums you paid if you outlive the term and the policy stays in force. It costs more.
- Child rider. Adds a small amount of coverage for your children under your policy.
Riders are useful, but each one adds cost or complexity. Pick the ones that fit a real worry, and skip the rest.
Is term life right for you?
Often a good fit
- you have a need with an end date and want the most coverage for the money.
- you want to cover a mortgage, income or debts.
Maybe not the right fit
- you want coverage that never expires.
- you want a policy that builds cash value.
