Term life insurance is one of the most straightforward financial planning tools available, and one of the most consistently underbought by the households that need it most. If someone depends on your income or your labor to maintain their financial security, the cost of inadequate coverage is significantly higher than the premium. This guide covers how term life works, how much you need, and what to look for when shopping.

How Term Life Insurance Works

A term life insurance policy pays a specified death benefit to your named beneficiaries if you die during the policy term, typically 10, 15, 20, or 30 years. If you outlive the term, the policy expires with no payout and no cash value. Premiums are fixed for the life of the policy and determined at issue based on your age, health, and the coverage amount.

The simplicity is the point. Term insurance is pure protection; you’re paying for the death benefit, not for a savings or investment component. This is why term premiums are dramatically lower than permanent insurance premiums for the same coverage amount.

How Much Coverage Do You Need?

A useful starting framework: calculate the amount your family would need to replace your financial contribution, pay off outstanding debts, and fund future obligations without your income.

Income replacement: multiply your current income by the number of years your family would need it, typically until the youngest child is financially independent or your surviving spouse reaches retirement age.

Outstanding debts: add your mortgage balance, student loans, and any other significant liabilities.

Future obligations: add anticipated college funding, childcare costs your surviving spouse would need to absorb, and retirement contributions that would stop.

Subtract existing assets: cash, investments, and existing coverage reduce the gap.

For most dual-income households with young children and a mortgage, this calculation typically results in a coverage need of $1–3 million per earner, which translates to annual premiums of $500–$1,500 for a healthy person in their 30s for a 20-year term policy.

Choosing a Term Length

Match the term length to the period during which your family most depends on your income. A 30-year term covers a 35-year-old until age 65, through the entire working career and the years when the mortgage is outstanding and children are being raised. A 20-year term may be sufficient if you’re further along in both career and family stages.

The cost difference between a 20- and 30-year term is often modest relative to the additional protection; it’s worth pricing both.

Individual vs. Group Coverage

Employer-provided group life insurance is a benefit, but it shouldn’t be your only coverage. Group coverage is typically 1-2x salary, which rarely matches your actual coverage need. More importantly, group coverage is tied to your employment: if you leave your employer, you lose the coverage, often at a stage in life when individual coverage is more expensive to replace.

An individual term policy purchased independently is portable, predictable, and for most healthy individuals in their 30s, remarkably affordable. Buying it before a health change that makes you uninsurable or significantly increases your premium is the other key argument for not waiting.

What to Look For When Shopping

Financial strength rating. Look for insurers rated A or better by AM Best. Life insurance is a long-term contract; you want a company that will be around to pay the claim.

Level premiums. Confirm that premiums are fixed for the entire term, not adjustable.

Conversion option. Some term policies include the option to convert to a permanent policy without a new medical exam. This can be valuable if your health changes during the term and you need permanent coverage.

Riders. Common additions include a waiver-of-premium rider (premiums are waived if you become disabled) and an accelerated death benefit rider (allows access to part of the benefit if diagnosed with a terminal illness). Evaluate whether the additional cost is justified.

Millennial Wealth Tip: The most common reason people don’t have adequate term life insurance is that they put off the application because it feels like acknowledging something unpleasant. The application process has become significantly easier; many insurers now offer accelerated underwriting with no medical exam for healthy applicants for coverage amounts up to certain limits. For most people, it takes less than an hour to apply and get a decision.