Is a 20-year term life insurance policy right for you?
There are many different kinds of life insurance policies, but 20-year term life is one of the most popular choices. It's easy to buy, and since there's a lot of competition between insurance companies, it tends to be affordable too. But the fact that it's popular doesn't necessarily mean it's the best choice for your needs. Before buying, you should think about your current financial responsibilities and future plans. Twenty years might seem like a long time, but it may not be long enough. What happens after that? This article will help you figure these things out and suggest other options to consider.
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20-year term life: Key features and benefits
Level premiums | Income tax-free benefit | No cash value | Temporary coverage |
Payments in "level" policies don't go up or down for the 20-year coverage period. | Claims are paid to your beneficiaries in a lump sum with no taxes owed. | Unlike whole life insurance, there's no cash value beyond the death benefit. | When the term expires, so does your protection. You have to get a new policy – with higher premiums – to continue coverage. |
One of the best things about a 20-year term policy is that it tends to be very affordable. If you tried our calculator, the quote you got might well have been lower than expected. The Life Insurance Marketing and Research Association (LIMRA) found that most people believe the price of term life insurance is three times higher than the actual cost.1 But as our calculator shows, a 30-year old non-smoking female can get $1,000,000 of coverage for just $48 a month.
What happens after 20-years are up?
Term life policies – by definition – only last for a limited amount of time and are just designed to give your beneficiaries a valuable lump-sum payment if you die during that period. Unlike permanent forms of life insurance, term policies don't have cash value.1 So when coverage expires, your life insurance protection is gone -- and even though you've been paying premiums for 20 years, there's no residual value. If you want to continue to have coverage, you'll have to apply for new life insurance. The only problem is, the cost will be much higher: when it comes time to renew, you'll be 20 years older, with 20 years less life expectancy.
You may be able to convert your policy to permanent coverage
Many life insurance companies offer "convertible" term policies. Convertibility lets you change your coverage to permanent whole life without getting a new medical exam – which would likely increase your cost. Guardian lets you convert a life insurance contract at any point in the first five years – and offers an optional Extended Conversion Rider which enables you to do so for the duration of the insurance term.2
Why convert? If you're not a diligent saver, you may be attracted to the wealth-building aspect of whole life insurance. If you've had a serious health problem – for example, a heart attack – it may be difficult to get other coverage. Or maybe you just want permanent life-long insurance protection. 20-year coverage might seem like the best choice now, but things change.
When can 20-year term life insurance be a fit? And when might it not be a fit?
Consider for: You have a young family | May not fit for: You have a special needs child |
If you have young children and only want coverage that lasts until they are adults, this can be a choice to consider. If your family is still growing and you're not sure 20 years is enough, consider 30-year term coverage. | Life insurance is often used to help pay for the care of a special needs child after the parents pass away. If the term ends before that happens, there's nothing left for the child. That's why many special-needs parents have permanent whole life or universal life policies. |
Consider for: You want the most coverage per dollar | May not fit for: You want wealth-building cash value |
Term is sometimes called "pure life insurance" because there's no cash value – it's designed purely to give your beneficiaries a payout if you die during the term. Since no premium dollars are invested in your policy’s cash value, you can get a bigger benefit per premium dollar. | If you want life insurance that builds tax-advantaged value that you can use while you're still alive, you should look into permanent whole life or universal life. 3 |
Consider for: You're within 20 years of retirement age | May not fit for: You want an asset to help fund retirement |
If you just want life insurance to replace earnings during your working years and don't think your family will need a payout after you stop earning income, this can be an option to consider. | Since term life doesn't have cash value, you can't borrow against any built-up value or withdraw from your policy for money to supplement your retirement. Consider permanent whole life or universal life coverage instead. |
Consider for: You want to supplement permanent coverage | May not fit for: You really want life-long coverage |
Many people who own permanent life insurance also get term coverage, for example, to boost the benefit payment while children are growing up and financial obligations are at their greatest. | If you don't feel you can put an "end date" on your life insurance needs, then you should probably look into permanent whole life or universal life insurance before getting term coverage. |
Other kinds of life insurance you may want to consider:
30-year term life
If you think you may need more than a 20-year policy length, consider 30-year term coverage. It works the same way as a 20-year policy but lasts ten years longer. The monthly premiums will be somewhat higher, but in the long run, it will typically cost less than reapplying for 10-year term coverage after your 20-year policy ends. Why? Because even though your premiums will be lower for the first 20-year term, the insurance contract you get two decades later may cost significantly more. One of the most basic rules of life insurance is that price goes up as you get older. Also, a lot can happen in 20 years. For example, your doctor could find that you have high blood pressure. Even if well-controlled, that kind of diagnosis will raise the cost; in some cases, your health status could make a new policy unaffordable.
Permanent life insurance
Permanent life insurance lasts your entire life, as long as premiums are paid. These policies include a wealth-building component – the policy's cash value– which helps make coverage last indefinitely while providing other financial benefits. A portion of your premium dollars are invested, and your cash value grows tax-deferred over time. Within a few years, it can grow into a useful sum that can be borrowed against in a tax-advantaged way, used to pay premiums, or even surrendered for cash to help fund your retirement. In any case, families are entitled to the entire death benefit payment from the first day the insurance contract is in effect.
The two main permanent policy types are whole life insurance and universal life insurance. Whole life insurance is the simpler of the two – the premium remains the same for life, the death benefit is guaranteed, and the cash value grows at a guaranteed rate. Universal life insurance can be less expensive, but the premiums, benefit, and cash value growth rate can vary.4 In any case, both kinds of policies are more complex than a term policy. Key differences between the three policies are summarized below – but if you think you want permanent life insurance, you should speak with a financial professional who can better explain and tailor your policy to your needs.
Term life, whole life, and universal life compared
Term Life Insurance | Whole Life Insurance | Universal Life Insurance | |
Coverage period | Limited to a specific term | Permanent | Permanent |
Builds cash value | No | Yes | Yes |
Cost for a given death benefit | Less expensive than whole or universal | More expensive than term | More expensive than term |
Premiums | Typically fixed | Typically fixed | Can vary |
Income tax-free death benefit | Yes | Yes | Yes |
How to buy life insurance
Through your workplace
Getting life insurance at work can be a good idea. It's easy to qualify for, and you get affordable group rate pricing. However, you may not be able to get a level-term policy that locks a rate for 20 years. Workplace plans typically offer "yearly renewable" term coverage, and the rate can go up at each renewal. Also, the coverage amount may be limited, and you might want or need more financial protection for your loved ones. Fortunately, other options are available for your life insurance needs.
Online
It's easy to shop for term coverage online. If you're sure you want a 20-year term policy, and you know how much coverage you need, this may be an option. Many companies, including Guardian, make it simple to get term life insurance quotes, compare costs, and apply for coverage – all online.
Working with a financial professional
If you're unsure about the length of coverage you need or what type of policy is best for you – term or permanent – consider working with a financial professional. These individuals can provide information about the options and riders that fit your immediate needs and long-term goals. If you have a financial professional you trust, ask them how much life insurance and what type of policy you should have. Otherwise, Guardian can connect you with a financial professional who will listen to your needs, tell you about the best ways to meet those needs within your budget, then help you decide.
Frequently asked questions about life insurance
What happens after 20-year term life insurance?
When your policy's term expires, so does your life insurance benefit. You either have to do without or get another policy. While many term policies can technically be extended via a guaranteed renewability clause (see below), this is not financially viable for most policyholders.
Can 20-year term life insurance be extended?
Technically speaking, you can usually choose to renew your term policy on a year-to-year basis until you are 95 years old. That's because most term life policies have a guaranteed renewability feature that lets you extend your coverage – and current death benefit – without going through a new underwriting process and getting another medical exam. However, the insurance company will typically raise your premium quite significantly. This type of extension is rarely used – and when it is, it is usually done by otherwise uninsurable people (for example, because they have been diagnosed with a terminal illness).
What does a 20-year term life insurance policy mean?
This is life insurance with a policy term of 20 years. If the policyholder dies during that time, the life insurance company pays a death benefit to his or her beneficiaries, often dependents or family. After 20 years, there is no more coverage, and no benefit paid.
How much is a 20-year term life insurance policy?
In 2023, the average monthly life insurance premiums for $500,000 of 20-year term coverage for a non-smoking male in good health is $30.52 at age 35; at age 45, it's $61.19; at age 55, $152.65. Women tend to live longer and enjoy lower insurance rates, so the cost is $25.56 at 35, $48.14 at age 45, and $110.51 at 55. Tobacco use will cause rates to rise for each of these coverage amounts .5