The short answer
This guide answers the most common questions about term life for income replacement.
The term is the part of a life policy people think about least, yet it matters as much as the amount. Too short, and coverage ends while your family still needs it. Too long, and you pay for years you may not need.
Here is how to choose between 20 and 30 year term life insurance.
Part of our complete guide: Term Life Insurance: The Complete Guide.
Quick answer
Pick the term that covers your longest important need. Longer terms cost more per year but lock in today's age. Two policies with different terms can cost less than one.
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On this page
- Term life for income replacement: what is term life insurance?
- Term life insurance quotes for new parents: how much term life parents need
- What is a term life ladder?
- Should you buy term or whole life?
- A worked example
- How long should your term be?
- What happens after you apply: underwriting
- Who term life insurance is for
- Frequently asked questions
Term life for income replacement: what is term life insurance?
Term life insurance covers you for a set number of years, such as 10, 20 or 30. If you pass away during the term, the policy pays a death benefit to your beneficiaries. If you outlive the term, the coverage ends and nothing is paid.
Because it does not build cash value, term is usually the most affordable way to buy a large amount of coverage. It fits needs that have an end date: a mortgage, raising children or replacing income until retirement.
Term life insurance quotes for new parents: how much term life parents need
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.
Compare rates from several carriers in about two minutes. Free, no obligation.
What is a term life ladder?
Needs shrink over time. A ladder lets your coverage shrink with them. Each policy is separate, with its own term and premium, and each one simply ends on schedule.
The trade-off is a little more paperwork. Many families find that worth it for the savings.
Should you buy term or whole life?
Term is temporary and affordable. Whole life is permanent, builds cash value and costs more. Neither is better in every case. The right choice depends on how long the need lasts and how much you can comfortably pay.
If you are unsure, a convertible term policy keeps your options open. You can switch part of it to permanent coverage later without new health questions, within the policy's window.
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.
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.
How long should your term be?
The right term covers the years your family would feel the loss of your income the most. For many parents, that is until the youngest child finishes school. For homeowners, it is often the years left on the mortgage.
If two needs end at different times, consider two policies with different terms. As each need ends, its premium goes away too.
What happens after you apply: underwriting
Every life insurance application goes through underwriting. That is the insurer's review of who you are, how healthy you are and how much risk the policy carries. The result is your rate class, which sets your price.
- Your answers. Health history, medications, tobacco or nicotine use, family history, travel and hobbies.
- Records. Prescription history, a shared database of prior insurance applications, and often your driving record.
- Sometimes an exam. A short visit from a paramedical examiner to check height, weight, blood pressure and lab samples.
- Sometimes medical records. For larger amounts or certain conditions, the insurer may ask your doctor's office for notes.
Insurers do not all weigh these things the same way. One carrier may treat a managed condition, like controlled blood pressure, more favorably than another. That is a big reason to compare several carriers rather than accept the first offer.
Be complete and honest on the application. Policies have a contestability period, usually the first two years, when the insurer can review a claim against what you said when you applied.
Who term life insurance is for
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.
