Term Life Insurance Basics

Term vs. Permanent Life Insurance: Key Differences

Feature	Term Life	Permanent Life
Coverage Length	Set term (10, 20, 30 years, etc.)	Lifetime (as long as premiums paid)
Premiums	Level for term, higher on renewal	Higher, often fixed
Cash Value	None	Yes (grows tax-deferred)
Convertible?	Often (with “conversion privilege”)	N/A
Purpose	Short/medium-term needs, income replacement	Lifelong protection, legacy, cash accumulation
Cost	Lower	Higher

Term life insurance covers you for a set amount of time rather than providing permanent protection. Often seen as the simplest kind of life insurance, a term policy ensures that, in exchange for regular premium payments, the insurer offers coverage for a specified period—commonly 10, 15, 20, or 30 years. Twenty-year terms are especially popular. Here’s how term life works and when it might benefit your overall financial plan.

How Does Term Life Insurance Work?

If the insured person dies within the policy’s coverage window, the policy’s death benefit is paid to beneficiaries, offering quick financial support. Coverage lengths usually range from 10 to 30 years, with 20 years being a typical choice. Term life helps protect your family from sudden financial strain due to loss of income.

Term policies often require a medical exam, though some carriers offer no-exam options with specific limits. Unlike permanent coverage, term policies lack a cash value component and are purchased solely for the death benefit. Premiums are usually level throughout the coverage period, but details vary by policy.

When the term ends, you can let the policy expire or renew it—though new premiums reflect your older age. If you think you may want permanent coverage later, look for term policies with a “conversion privilege,” letting you switch to permanent life insurance under certain conditions—usually without a new medical exam.

Understanding Term Life Insurance

Insurers set premiums based on age, health, family history, and life expectancy. If the insured passes away during the term, the policy’s face amount is paid out. If the term is outlived, there’s no payout. Renewal is sometimes available, but costs generally rise with age and health changes.

Types of Term Life Insurance

• Level Premium (Level Term): Coverage for a set period—premiums remain constant throughout. Early on, premiums may be higher than needed for that year’s risk to keep payments steady over the term.
• Yearly Renewable Term (YRT): Renewed annually, usually without new proof of insurability. Early premiums are lower, but they rise each year.
• Decreasing Term: Renewed yearly; the death benefit drops over time on a set schedule. Premiums typically stay the same each year.

Is Term Life Insurance Right for Me?

• Providing immediate financial support for loved ones in case the main earner passes away
• Ensuring income replacement for beneficiaries
• Covering debts—such as a mortgage or major loans—that could overwhelm survivors
• Protecting young families as they build assets and financial stability
• Offering a shorter, cost-effective coverage window (e.g., 10 years) when permanent insurance isn’t required

Term life may fit well for early career, young family, or high-expense periods. As you move through life stages, insurance needs may shift—permanent life insurance may become more relevant later for lifelong coverage or cash value features. For more, see our Term or Permanent Life Insurance resource.

Term vs. Permanent Coverage

Term insurance is often budget-friendly, offering higher coverage amounts for lower premiums compared to permanent policies. However, after the term ends, renewing coverage at an older age generally brings much higher premiums. Permanent life insurance costs more upfront, but lasts for life and builds cash value. Some prefer permanent coverage to avoid the risk of paying for insurance they might never use, and to gain cash value and legacy options.

Term Life Insurance FAQs

• Is a medical exam always required? Not always—some carriers offer no-exam policies for certain ages and coverage amounts.
• Can you convert a term policy to permanent insurance? Many term policies allow a “conversion privilege,” typically without further medical exams, within a set timeframe.
• What happens if I outlive my policy? If the insured lives beyond the term, there’s no payout. You may be able to renew at a higher cost or convert to permanent coverage if your policy allows.
• Who should consider term life insurance? It’s ideal for those with temporary needs: income replacement, debt protection, or covering major expenses during peak earning years.
• Does term life insurance build cash value? No, term life is “pure” insurance—no cash value or investment component.