What is 20‐Year Term Life Insurance?
The most commonly purchased insurance is 20-year term life insurance. The product is popular because it provides life insurance protection for a set premium that doesn’t change during the entire 20 years. Term insurance is available for periods ranging between 5 and 35 years, but the generally reasonable cost, along with the length of protection, makes 20-year term life insurance the top choice, according to insurance experts.
How Does 20-Year Term Life Insurance Work?
- Set death benefit. You choose the death benefit you want – different amounts will have different costs. Once you choose the death benefit and buy the policy, that amount doesn’t change for the 20 years. A variety of death benefits are available. Some policies have minimums, such as $25,000 or $50,000. That can increase to millions of dollars, if you can afford the premium.
- Premium doesn’t change. This is the feature that is most attractive to most people. When you buy 20-year term life insurance, the initial premium is the same as the final premium on the policy. What does affect the initial cost is the amount of insurance protection and your age and general condition. The older you are, the higher the premiums for term insurance because of the increased odds that you will die during to the 20-year period.
- No cash value. A 20-year term life insurance policy does not accumulate a cash value like other insurance products, such as whole life insurance. That’s the main reason term life insurance is the cheapest option available. The agreement between you and the insurance company is something like this: You agree to pay premiums for 20 years in the event that you die during that period. If you don’t, the insurance company gets to keep all the premiums.
- How much term insurance do I need? The determination can be complicated and is different for every person. In general, however, insurance experts say one rule of thumb is to leave a spouse 10 times the amount of your yearly salary. A better way to determine the amount of insurance needed by your family when you are gone is to actually figure out the expenses your family will face in your absence. Remember that most insurance proceeds are not subject to income tax.
What Happens After 20-Year Term Life Insurance?
It’s important to have a plan for when your term insurance expires. There are several options, all of which will cost considerably more money that what you paid for the past 20 years.
- Renewable term insurance. You can buy 20-year term life insurance with a provision that allows you to renew the policy for an additional term without a physical exam. This can be an advantage if your health has deteriorated during the initial 20 years. However, be prepared: the cost of the next term insurance will be considerably higher.
- Convertible term insurance. Your 20-year term life insurance can also be convertible to whole life – permanent insurance. Again, this can sometimes be done without a physical exam if you have a provision for a guaranteed conversion. The cost will be much higher and whole life creates a cash value over time, unlike term insurance.