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How term life insurance works

A term life insurance policy is an agreement between you and a life insurance company: You agree to pay a premium for a specific period of time (usually between 10 and 30 years); in return, there is a guaranteed death benefit that the company promises to pay to your beneficiaries (typically your family).1 The death benefit is almost always paid out in an income tax-free lump sum of cash.2 

Term life insurance is simpler and typically more affordable than permanent life insurance, such as a whole life insurance policy that provides life-long protection. Whole life policies have an added "cash value" component that can build up a valuable tax-deferred asset – money you can use during your lifetime.3,4 A term life policy has no cash value component: once the life insurance term is over, there's no value or payout to your family.

The pros and cons of term life

Advantages Disadvantages
Cost-efficient form of coverage No cash value component
Provides coverage while it's needed most Coverage is not permanent
Highest death benefit amount per premium dollar Once the term expires, there's no payout
Affordable for young, healthy policyholders Typically more expensive to renew when you get older

Learn more about How term life insurance works. Or, look into Term vs. whole life insurance: Which is right for you.

Term life insurance may cost less than you think.

A recent survey found that 43% of millennials believe that life insurance is at least six times more expensive than the actual cost.5  The chart below shows the estimated monthly costs for a $1,000,000 term coverage policy for a 30-year-old man and woman who do not use tobacco and earn $50k a year.i

Average costs for a $1,000,000 term policy

Male, Age 30 Female, Age 30
Term Cost per month Term Cost per month
10 year $42 10 year $34
15 year $50 15 year $42
20 year $61 20 year $48
30 year $119 30 year $96

Factors that affect the cost of a policy

As you can see, the average woman pays less for coverage than the average man. That's because women tend to live longer, and life expectancy has an understandable impact on the cost of coverage. In addition to gender, here are some other factors that affect the price of term life premiums – and why:

Coverage amount

The bigger the death benefit, the higher the cost. While this may seem obvious, you should also know that a bigger policy can be cost-effective: if you double the death benefit, your premiums don't typically double.

Term length

The longer the term, the more you'll pay per month. The more years you need life insurance, the higher the likelihood that the insurance company will have to make a payout to your family. However, you'll pay less for a 20-year term life policy than two consecutive 10-year policies.


The older you are, the higher the cost. The older you get, the lower your life expectancy – so you pay more for a given amount of coverage. 

Health status

The better your health, the lower your cost. Most policies are medically underwritten, which means you have to answer health questions and get a medical exam. "Guaranteed acceptance" policies don't ask about your health, but they cost more because the insurance company must assume you have health issues.


Tobacco use and other hazardous activities raise your cost. Smoking and certain activities such as scuba diving increase the likelihood of a death benefit payout. However, if you quit smoking, you may qualify for lower rates after a year.

Optional riders

Additional policy features can affect cost. Riders can enhance the value of the policy by adding flexibility and extra financial protection. Some add to the cost of a policy, but others may not.6

Different ways to think about how much coverage you need

"How much insurance do I need?" is a common question. The answer depends mostly on where you are in life and how many family members rely on your income. In general, the younger you are, the more coverage you'll need to compensate for the years of potential wage-earning ahead of you. And the more family members depend on you, the more coverage you'll want for income replacement if you die. 

Our calculator uses Human Life Value to help determine coverage assumptions based on what you're earning now and what you expect to earn for your family in the future.7 If you're between the ages of 18 and 40, you multiply your current income by 30; as you get older and have fewer working years left, that multiple decreases. It's a rough estimation method, but there are others, such as the DIME method, which looks at your Debts, Income, Mortgage obligations, and Education goals for any children in your family.

Find out more about other ways to calculate your life insurance need, or speak with one of our financial professionals for a more personalized analysis of your needs.

10, 20, or 30 years? How to choose a term length.

One of the biggest questions people have about term life insurance policies is, "How long do I need coverage?" If you have children, a popular rule of thumb is to choose a term long enough to see them out of the house and through college. As noted, the longer the term, the more insurance policies cost. Nevertheless, it usually pays to err on the side of getting a longer term policy than a shorter one: A person at age 30 will pay less overall for a 20-year policy than they would for two consecutive 10-year policies – because when they renew, they'll have to pay the rates of a 40-year-old. 

Most policies are "level term" – but there are other kinds as well

The quote you get from Guardian – and most other online calculators – is for medically underwritten "level term" life insurance with rates that stay the same for the length of the policy. When you apply, you'll be asked health questions and required to undergo a simple paramedical exam to qualify. Certain health issues may disqualify you from coverage; others may just put you in a higher rate class.

Other term options are also available, but you may have to shop around a bit more to find them:

  • Yearly renewable term – This type of insurance provides coverage for a year at a time, with an option to renew without a health exam for the duration of the term – but at a higher cost each year. Compared to a level premium policy, your payments will likely be lower at first, but over the long term (for example, 20 or 30 years), you will end up paying more as rates go up. 
  • Return of premium  – This type of policy actually pays back all or a portion of your premiums if you live to the end of the term. The downside is, your payments could be 2-4 times higher than with a regular term policy. 
  • Decreasing term – This is typically purchased to pay off a large business loan or mortgage if the borrower dies, with a premium and benefit that decrease over time as the loan balance is paid off.
  • Guaranteed and simplified issued  – These life insurance policies don't require a medical exam during the application process and only ask a few simple health questions at most. Premiums are higher because the insurance company must assume you're a risky prospect with health problems. These policies may have level premiums but typically have a small death benefit. They are usually sold to seniors for funeral and final expense coverage. 


Not sure how long you need coverage? You may be able to convert to permanent whole life insurance.

Many policies have a term conversion rider. This lets you convert your policy to a whole life insurance policy for a specified period without having to undergo a medical exam. This adds valuable flexibility by letting you get permanent coverage later on without going through the medical underwriting process. If your health takes a turn for the worse, conversion to a permanent policy may be the only viable way to provide the death benefit you want for your family. 

When you convert to whole life insurance, your premiums will rise. However, your benefit amount is guaranteed for life, as long as your regular premiums are paid. The policy also earns additional cash value that can be used for things like policy loans. Policies from a mutual life insurance company (such as Guardian) may also provide dividends, helping you fund life's other financial opportunities.2,3,4

With Guardian Level Term, a conversion privilege comes at no added cost. It lets you convert to whole life insurance at any time in the first five years. Guardian also offers an Extended Conversion rider for a modest monthly increase in cost. This lets you convert a Guardian term policy to a whole life insurance policy for the entire duration of the term – as much as 30 years.

How to buy term life insurance

Through your workplace

A good place to start is your workplace, as your employer may offer life insurance at lower group rates. If offered, think about enrolling. It's generally cost-efficient and easy to buy. Your employer has done the work of finding a policy, and enrolling typically requires little more than signing a form. You may be able to obtain this coverage without taking a medical exam or providing medical records. However, the coverage amount offered may be limited, and you might want more protection to help provide financial confidence to your loved ones. Fortunately, other options are available.


If you don't have workplace coverage or supplement it – it's easy to shop for term life coverage online. Many companies, including Guardian, make it simple to get a life insurance quote online, compare rates, and apply for coverage.

Working with a financial professional

If you're not sure what kind of protection is best for you – term or permanent insurance coverage – consider working with a financial professional. He or she can provide  insurance information about the options 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 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 term life insurance

Which is better, term or whole life insurance?

Either type of insurance provides meaningful protection and can be a good option depending on your needs. Term life insurance offers protection that lasts for (typically) a 10 to 30 year period. It is the more affordable option. Whole life insurance is permanent coverage that lasts your entire life, provided you make premium payments. Like other permanent life insurance products, a whole life insurance policy has an extra cash value component. Over time, the value of the policy can build up to become a valuable, tax-deferred asset that can be used in various ways during your lifetime. 2,3,4

What happens if I outlive my term life insurance?

Term policies provide temporary life insurance protection for a specific period of time. If you outlive your policy term, life insurance coverage lapses. There is no residual cash value, and your beneficiaries will no longer get a payout if you pass away. You can apply for a new policy, but rates will be higher because you are older. If you don't like the idea of paying premiums for 20 years or more with no return, consider getting a permanent policy such as whole life insurance. As long as premiums are paid, the whole life policy will not expire, and it will earn additional cash value that can be used for things like policy loans.

What is the cost of a $500,000 term life insurance policy?

Term policies can be more cost-efficient than you might think. A female, age 30, who doesn't use tobacco can get a $500,000 20-year term policy from Guardian for just $27 a month. The same coverage amount in a 10-year term policy is even more cost-efficient: only $20 per month.

Do you get your money back at the end of a term life insurance?

Most term life policies have no face value once the term ends. The exception: A "return of premium" policy that pays back all or a portion of your premiums if you live to the end of the term. However, premiums for this type of policy can be 2-4 times higher than a regular term policy. 

At what age should I buy life insurance?

You may think that life insurance is only for recent parents or mid-aged people. But young adults are in the best position to purchase a life insurance policy. When you're young, the cost is typically lower than it will be later on, so you can lock in a much better deal.



1 All life insurance policy guarantees are subject to the timely payment of all required premiums and the claims-paying ability of the issuing insurance company.

2 Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

3 Dividends are not guaranteed. They are declared annually by Guardian's Board of Directors. Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial professional and refer to your individual whole life policy illustration for more information.

4 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

5 2022 Life Insurance Barometer Study, LIMRA:

6 Riders may incur an additional cost or premium. Riders may not be available in all states. 

7 The HLV Theory states that one should maintain life insurance equal to the present value of their expected future earnings. Life insurance companies place limits on life insurance available to consumers based upon this formula and have created age-based multiples of current income as a guideline. For example, a person in their 30s may be insured for around 30 times their annual income, 20 times for a person in their 40s and 10 times for people in their 50s. Age 60 and over about 1 times net worth.

i Guardian Protecting Those We Love Publication

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