Term Life Insurance

A life-insurance policy that pays a death benefit if the insured dies within a fixed term (e.g., 20 years). Cheaper than permanent insurance and the right fit for most income-replacement needs.

How term life insurance works

The basic structure:

Coverage period — typically 10, 20, or 30 years.
Death benefit — paid to beneficiaries if insured dies during term.
Premium — fixed for term length.
No cash value — pure insurance, no investment component.
Expires at end of term — coverage ends unless renewed.

Term life is the simplest and cheapest form of life insurance.

Term vs. whole life

The major distinction:

Term life — covers a specific period; cheaper; no cash value.
Whole life — permanent coverage; builds cash value; much more expensive.

For most people, term + investing the difference produces better outcomes than whole life. The insurance industry sells whole life aggressively because it's profitable for them.

When term life makes sense

Common use cases:

Income replacement for dependents during working years.
Mortgage protection — coverage matching mortgage term.
Children at home — coverage until they're financially independent.
Income gap until retirement assets sufficient.

The general principle: coverage during years when others depend on your income.

Coverage amount

Typical guidance:

10-12x annual income as starting heuristic.
Sufficient to pay off mortgage, fund children's education, replace income.
Adjust for spouse's earnings, existing assets, debt.

Online calculators help estimate appropriate amount.

Term length

Typical considerations:

Match to need — until kids are independent, mortgage paid, retirement reached.
Younger → longer term locks in low rates.
20-year terms are most common.
Convertible options allow conversion to permanent coverage later (rarely worthwhile).

Don't over-buy term length.

Why term often beats permanent

For most people:

Term coverage is much cheaper.
Difference invested in index funds typically grows more than whole life cash value.
Insurance need decreases as savings grow — no need for permanent coverage.
Whole life commissions are high; salesperson incentives don't align with buyer.

The "buy term and invest the difference" strategy works for typical financial situations.

What individuals should know

For most adults with dependents:

Term life is appropriate insurance.
Skip permanent insurance unless specific estate planning need.
Comparison shop — rates vary significantly between insurers.
Apply when healthy — rates depend on health.

Term life insurance is one of the most-important financial products for people with dependents. It's also one where the simplest option (level-premium term) is usually the best.