How does term life insurance work?

Term life insurance is a type of life insurance that offers coverage for a set period of time, or term. Term life is usually the most affordable type of life insurance because it only lasts for a specific number of years, usually 10 to 30 years. Unless you buy return-of-premium life insurance, you receive nothing back if you outlive the term. However, many term life insurance policies offer the option to convert to a permanent life insurance policy at the end of the term. Many carriers also provide the option to renew a term life policy annually if you still need coverage past the expiration date.

What is the difference between term and whole life insurance?

Term insurance is designed to provide a death benefit if the insured passes away within the policy term. As the name suggests, term life insurance remains active for a predetermined “term,” which is the window of time that the policyholder chooses — typically between 10 and 30 years. When the term expires, the policyholder stops paying the premiums and the death benefit will no longer be paid out. Whole life insurance, on the other hand, is a type of permanent policy designed to provide coverage for your entire life. It typically offers a death benefit and a cash value component you can borrow against. Because whole life insurance policies usually have guaranteed payouts and cash value accumulation, premiums are often ten times more expensive than a term policy.

What factors impact my life insurance premium?

Life insurance premiums are largely based on mortality risk. In general, the higher the likelihood someone has of passing away while the policy is active, the higher the premium will be. Each insurer has its own underwriting algorithm for calculating your rate. Although each underwriting process is different, your age, gender, weight, health conditions, smoking history and occupation are typically used to help calculate your premium. The amount of coverage that you want to purchase is another key factor in determining the cost of life insurance. For those looking for cheap life insurance, it may be wiser to start shopping at a younger age.

Does having a preexisting condition impact my ability to purchase term life insurance?

Yes, having a preexisting condition can impact your ability to purchase term life insurance. Different insurers may view the seriousness of conditions differently, so comparing rates from various providers is important. If a life insurance provider approves you for a term life policy with a preexisting condition, your premium may be higher to reflect the health risks. However, insurers might be more likely to approve you if your condition is well-managed. For instance, maintaining a healthy lifestyle with Type 2 diabetes is likely to increase your chances of approval. Comparing rates is essential because each insurer has different underwriting guidelines, and finding the right one can help you secure better coverage at a more affordable rate. Speaking with a licensed insurance agent can also help you navigate your options effectively.

Is term life insurance cheaper than whole life insurance?

The cost of life insurance will vary based on your policy details and personal rating factors, but term life insurance coverage is typically cheaper than whole life insurance, a type of permanent coverage. This is because whole life insurance is designed to offer coverage for your entire life (maximum coverage ages range from 95 to 121) and guarantee a payout to your beneficiaries, as long as premiums are paid and terms of the policy are met. Term coverage, on the other hand, may not pay out a death benefit if you outlive the policy term and do not renew your coverage. That being said, the cost of life insurance coverage varies based on coverage amount and individual risk rating factors, so a term policy with a high coverage amount for an older individual may cost more than a permanent policy for a younger applicant with a low coverage amount.

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Best term life insurance for 2024

Written by

Ashlyn Brooks

Edited by

Natasha Cornelius, CLU

Reviewed by

Tony Steuer

Updated Nov 13, 2024

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict ,this post may contain references to products from our partners. Here's an explanation for .This content is powered by HomeInsurance.com (NPN: 8781838). For more information, please see our .

The Bankrate promise

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict ,this post may contain references to products from our partners. Here's an explanation for .This content is powered by HomeInsurance.com (NPN: 8781838). For more information, please see our .

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Term life insurance is a type of coverage that lasts for a set period of time, typically between 10 and 30 years. It’s typically much more affordable than permanent life insurance which is designed to last your entire life. Term life insurance may be the right choice for people who want to protect their family while their kids are young and are working on paying off debt, such as a mortgage. Navigating insurance policies can be challenging, so Bankrate is here to guide you through choosing the best term life insurance policy for your needs.

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The amount of coverage you need depends on many factors, including your age, income, mortgage and other debts and anticipated funeral expenses.

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Whole life insurance combines life insurance with an investment component.

Coverage for life
Tax-deferred savings benefit if premiums are paid
3 variations of permanent insurance: whole life, universal life and variable life include investment component

Term life insurance is precisely what the name implies: an insurance policy that is good for a specific term of time.

Fixed premium over term
No savings benefits
Outliving policy or policy cancellation results in no money back

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Best term life insurance companies

The best term life insurance companies depend on an individual’s needs and preferences. While your quoted premium will typically not vary as much as for life quotes as home or auto insurance, different companies do offer different coverage types and levels. We chose the following companies based on their third-party financial strength and J.D. Power customer satisfaction scores, as well as the policy options and available coverage capacities (the maximum dollar amount a policy can be). It may be helpful to start your research with the following providers:

Company	Best for…	J.D. Power score	AM Best	S&P
State Farm	Excellent customer service ratings	699/1,000	A++ (Superior)	AA
Mutual of Omaha	Easy online quoting for term policies	659/1,000	A+ (Superior)	A+
Pacific Life	High potential coverage limits	657/1,000	A+ (Superior)	AA-
Northwestern Mutual	Digital tool availability	670/1,000	A++ (Superior)	AA+
Guardian Life	Policy customization	685/1,000	A++ (Superior)	AA+

Why we chose it: State Farm has the highest J.D. Power score for customer satisfaction on our list.

State Farm is our 2024 Bankrate Awards winner for Best Term Life Insurer for the third year in a row thanks to its superior AM Best score and near-nationwide availability. State Farm offers several term insurance products, but its return-of-premium policy option may be particularly helpful for certain term life insurance policyholders. This add-on coverage (also known as a life insurance rider) lets policyholders choose between a 20- or 30-year payment term and receive a portion of their premiums back if they outlive the term. The return-of-premium policy can be renewed annually until age 95. While the return-of-premium option comes at an additional cost, it also builds cash value, which is rare in a term life insurance policy.

Why we chose it: Mutual of Omaha offers easy online quoting for its term life insurance policies and a wide array of riders for potential policy customization.

If you want to get an idea of how much term life insurance might cost, Mutual of Omaha offers a term life insurance quote tool online. Enter your gender, date of birth, tobacco usage and coverage amount to get a rate. Mutual of Omaha offers a plethora of additional riders that can be added to its term life policies. It should be noted that not every rider can be used with every type of policy. To verify how much coverage you need and which riders can be added to your policy, you may want to consult with an agent. This company also offers a locator service to help you find a financial advisor near you.

Why we chose it: Pacific Life has term life insurance policy options with high coverage levels.

Anyone wanting to tailor their term life insurance with riders or purchase higher coverage limits might consider Pacific Life for term life insurance. The carrier offers two policy options, Promise Term and Elite Term, both of which are convertible to cash value life insurance. Its Promise Term policy offers a minimum amount of $50,000 in coverage, while the Elite Term starts at $750,000 and goes to $3 million or more. Available options include a waiver of premium for disability, as well as a terminal illness and child term rider. The carrier also offers indexed universal life insurance, variable universal life insurance and universal life insurance products.

Why we chose it: Northwestern Mutual offers a wide array of informational resources and policy management tools online.

Northwestern Mutual is the second largest life insurer in the U.S. by direct premiums written, with just under 7 percent of the total market share. The company has been insuring consumers for more than 150 years. Its term policies allow you to select your coverage period based on either a set amount of years or until a specific age, depending on which option is most suitable for you. Northwestern Mutual plans are also convertible to whole life insurance, meaning you may be able to adjust your policy as your needs evolve. Northwestern Mutual also offers riders, including a long-term care benefit and waiver of premiums in the case of sickness of disability. The company’s A++ (Superior) financial strength rating from AM Best is the highest level available.

Why we chose it: Guardian life insurance offers four different term lengths and a long list of potential riders.

Guardian's term life insurance policies are available in four term lengths. The carrier also has a long list of riders for potential policy customization, including a guaranteed renewability clause in the event that you are diagnosed with a serious illness. However, be aware that the company does not offer a network of its own local agents, which may be disappointing to customers who prefer face-to-face service, but the insurer does have a tool that connects you with financial professionals in your area who can help you purchase a Guardian Life policy.

Term life insurance without a medical exam

Many insurers now offer term life insurance with accelerated underwriting, allowing eligible applicants to obtain coverage without undergoing a medical exam. This process uses data from your application, health records and other sources to assess risk quickly, making it easier and faster to get insured.

Even if insurers do not explicitly advertise these no-exam options, it's becoming increasingly common for them to implement such processes. It's worth asking your insurer if no-exam options are available, as many companies may offer them even if they aren't prominently featured.

For those specifically seeking no-exam term life insurance, companies like Ladder, Ethos and Bestow primarily offer policies that do not require a medical exam. These providers streamline the application process, often allowing you to get covered in a matter of minutes if eligible.

How to find the best term life insurance company for you

There are several factors to consider when shopping for a quality term life insurance policy. Since your life insurance will ultimately be responsible for providing the coverage you want for your family, these considerations may be beneficial to keep in mind when determining which provider is right for you. In addition to policy types, you could consider the following.

Consider customer satisfaction scores and financial strength ratings

Customer satisfaction scores may provide insight for consumers looking to purchase insurance products. These scores reflect how satisfied existing customers may be with the customer service and claims process. You might use these scores to get an idea of how your customer experience could be and which carrier might best fit your expectations.

A life insurance company’s financial strength score reflects its past ability to pay out claims and could help you decide if a company is financially sound. Third-party agencies such as AM Best, Fitch, Moody’s and S&P publish financial strength ratings for each major provider.

Consider your personal situation

When sorting through the top term life insurance companies, it's important to consider your specific needs and circumstances. Term life insurance provides coverage for a set number of years, making it a suitable option for temporary needs like covering debts or providing for your children while they are young. However, it might not be the best choice if you require lifelong coverage.

Many term policies offer options for renewability or conversion, allowing you to extend your coverage or convert it to a permanent policy without undergoing a new medical exam. This can be a valuable feature if your needs change over time.

If you are looking for coverage beyond a set term, such as for final expenses or to support a lifelong dependent, permanent life insurance might be more appropriate. Here are a few options to consider:

Whole life insurance: Whole life offers level premiums and a guaranteed death benefit that can last your lifetime — maximum coverage age ranges from 95 to 121. It also builds cash value over time, which you may be able to access through withdrawals or loans.
Universal life insurance: Similar to whole life, universal life offers permanent coverage with more flexibility. You can increase or decrease premium payments or the death benefit if life circumstances change.
Final expense life insurance: If you only need a small amount of coverage or have serious health issues, final expense life insurance may be your best option. It works like whole life, but doesn’t require a medical exam. Some policies are guaranteed issue, meaning there is no medical exam or health questions on the application.

Compare multiple quotes

Term life insurance quotes can vary significantly between insurers, depending on your individual risk factors. Comparing quotes is beneficial, as it can potentially save you a substantial amount of money, particularly if you have a pre-existing condition since insurers can evaluate and price various health risks differently.

Additionally, consider bundling life insurance with your home or auto policies. While this won't reduce your life insurance premium, many insurers offer multi-policy discounts. These discounts are often applied to your home and auto policies, which can lower your overall insurance expenses.

Frequently asked questions

Term life insurance is a type of life insurance that offers coverage for a set period of time, or term. Term life is usually the most affordable type of life insurance because it only lasts for a specific number of years, usually 10 to 30 years. Unless you buy return-of-premium life insurance, you receive nothing back if you outlive the term. However, many term life insurance policies offer the option to convert to a permanent life insurance policy at the end of the term. Many carriers also provide the option to renew a term life policy annually if you still need coverage past the expiration date.
Term insurance is designed to provide a death benefit if the insured passes away within the policy term. As the name suggests, term life insurance remains active for a predetermined “term,” which is the window of time that the policyholder chooses — typically between 10 and 30 years. When the term expires, the policyholder stops paying the premiums and the death benefit will no longer be paid out. Whole life insurance, on the other hand, is a type of permanent policy designed to provide coverage for your entire life. It typically offers a death benefit and a cash value component you can borrow against. Because whole life insurance policies usually have guaranteed payouts and cash value accumulation, premiums are often ten times more expensive than a term policy.
Life insurance premiums are largely based on mortality risk. In general, the higher the likelihood someone has of passing away while the policy is active, the higher the premium will be. Each insurer has its own underwriting algorithm for calculating your rate. Although each underwriting process is different, your age, gender, weight, health conditions, smoking history and occupation are typically used to help calculate your premium. The amount of coverage that you want to purchase is another key factor in determining the cost of life insurance. For those looking for cheap life insurance, it may be wiser to start shopping at a younger age.
Yes, having a preexisting condition can impact your ability to purchase term life insurance. Different insurers may view the seriousness of conditions differently, so comparing rates from various providers is important. If a life insurance provider approves you for a term life policy with a preexisting condition, your premium may be higher to reflect the health risks. However, insurers might be more likely to approve you if your condition is well-managed. For instance, maintaining a healthy lifestyle with Type 2 diabetes is likely to increase your chances of approval. Comparing rates is essential because each insurer has different underwriting guidelines, and finding the right one can help you secure better coverage at a more affordable rate. Speaking with a licensed insurance agent can also help you navigate your options effectively.
The cost of life insurance will vary based on your policy details and personal rating factors, but term life insurance coverage is typically cheaper than whole life insurance, a type of permanent coverage. This is because whole life insurance is designed to offer coverage for your entire life (maximum coverage ages range from 95 to 121) and guarantee a payout to your beneficiaries, as long as premiums are paid and terms of the policy are met. Term coverage, on the other hand, may not pay out a death benefit if you outlive the policy term and do not renew your coverage. That being said, the cost of life insurance coverage varies based on coverage amount and individual risk rating factors, so a term policy with a high coverage amount for an older individual may cost more than a permanent policy for a younger applicant with a low coverage amount.

Written by

Ashlyn Brooks

Writer II, Insurance