INSURANCEONE AMERICA’S GUIDE TO BETTER COVERAGE
Step 2 of 6 Guide contents

Term life

How does term life work?

The short answer

Term pays only if you die inside the years you chose. The part nobody shows you: when the years run out, many policies carry on at a much higher price, and between 27% and 96% of people leave in the first year (Society of Actuaries).

You pick a number of years and a dollar amount. If you die inside those years, it pays. If you don’t, the coverage you paid for runs out and you get nothing back. That’s it.

Don't know a word? Press any purple word to see what it means. They're all listed at the bottom of the page.

What term life is

Cover for a set number of years.

You are buying cover for the years your family could not absorb losing you.

  • While there is a mortgageThe years the house still has a loan on it.
  • While there are children at homeThe years somebody depends on you day to day.
  • While your income is the one holding it upThe years the household runs on your paycheck.

The part that costs people the most money

Most term policies don’t simply stop. They carry on, and the price jumps.

Everybody understands that the policy ends. Almost nobody is shown what happens at the end.

What happens the year after your term ends

Many leave in the first year. The price follows them out.

Society of Actuaries, US Post-Level Term Lapse and Mortality Experience

What happens when a level term ends Between 27 and 96 percent of policyholders lapse in the first year after a level term ends, and those who remain are between 1.5 and 10.7 times more likely to die than in the year before. THE LEVEL YEARS One price, every year Typically 10, 20 or 30 of them IT ENDS MANY LEAVE 27%–96% lapse in that first year The bigger the price jump, the more of them go WHO IS LEFT 1.5×–10.7× more likely to die than the same people the year before SO THE PRICE JUMPS Not greed. Arithmetic. When the price jumps, the people who stay are the ones who cannot easily get a new policy.

Swipe the chart sideways to see all of it →

Lapse study covering issue years 1990 onward, study period 2000–2017. Ranges are for Jump to ART and Graded structures.

Read that twice, because it is the whole mechanism

The price doesn’t jump because the insurer got greedy. It jumps because many people leave, and the people who stay are the ones who cannot easily get a new policy. The price reflects exactly that.

What to do about it now, rather than then

Three things, while the choice is still yours.

Try it

Does your term outlast the thing it is covering?

Move the two sliders. Nothing is saved and nothing is sent anywhere.

20 years
27 years
4 years old
Covered by your termThe last year somebody still depends on it

  • Match the length of the term to the years you are coveringThe jump at the end is the price of guessing short.
  • Check whether yours convertsMany term policies let you swap to permanent coverage without a new medical exam, but only inside a window, and the window usually closes years before the term does. It is the most valuable feature in your policy and the one least likely to be explained to you.
  • Monthly beats annual, and automatic beats a billThe same study found people who pay monthly, and people on automatic payment, are far less likely to lose coverage by accident.

Society of Actuaries, US Post-Level Term Lapse and Mortality Experience

Remember this

Know when your term ends and when its window to convert closes. They are usually not the same date.

Words on this page

Lapse
When a policy ends because the payments stopped.
Next — Step 3 of 6: How does whole life work? →