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Are you interested in purchasing term life insurance? It could be one of the most important decisions you make, but which term length is right for your needs? Twenty years is one popular term option, as it overlaps with several key financial life events.
What Is a 20-Year Term Life Policy?
A 20-year term life policy provides you with temporary life insurance coverage for a limited duration. When you buy a 20-year term life insurance policy, your coverage is guaranteed for the next 20 years. As long as you continue paying your premiums, your coverage will stay in force. Your policy will expire after 20 years, however, and you'll need to buy another policy if you want to stay insured. Your premium also stays the same for the entire 20 years.
The cost of term life insurance depends on how long it lasts, with longer-coverage policies costing more. A 20-year term policy is in the middle, as it generally costs more than 10- and 15-year term policies, but less than a 30-year term policy.
How Does a 20-Year Term Life Policy Work?
Let’s assume you purchase a 20-year term life insurance policy with a death benefit of $500,000. If you die any time during the 20 years of your policy (as long as it remains in force), your beneficiary would receive a payment of $500,000 and could use the money to cover any number of financial obligations. These might include final expenses, outstanding debt or medical bills, tuition costs and mortgage payments.
After a period of 20 years, though, your policy will expire — at which point you have a choice to make regarding additional life insurance coverage, depending on your health. You should reassess your financial needs and resources to determine your best option for coverage going forward. You may choose a shorter term policy, maybe for only 10 or 15 years, given your future life situation.
Why Choose a 20-Year Policy?
Where are you now? And where do you want to be 20 years from now? A 20-year term policy could be a good fit for a number of life stages, and examining your needs and goals could help you decide if this policy type is right for you.
Having Your First Child
Are you a new parent? Congratulations! A 20-year term life insurance policy could be a good option. This policy length would overlap with the time remaining until your new baby becomes an adult.
Stan and Emily, for example, have just had their first child — a baby girl. They both consider 20-year term policies because they believe their daughter will be able to support herself financially once she turns 20.
Coverage From Midlife to Retirement
A 20-year term could also be a good choice if you're in your 40s or 50s and are looking for coverage that will last until you retire. Policy length can cover retirement savings until retirement is reached.
Chris and Pat are both in their late 40s and plan to retire at age 67. Getting a 20-year term policy now would offer them the coverage they need until they exit the workforce.
An Affordable Choice Compared to a 30-Year Policy
It could also be a good alternative for anyone who would like long-term coverage but hasn't budgeted for the rates on a 30-year policy. A 20-year term policy gives long-term coverage for a couple of decades, and it's generally more affordable.
When Could a 20-Year Term Life Policy Be Less Suitable?
Remember, when choosing a term life policy, consider your long-term goals to find the option that best suits your needs. If you haven't had children yet — but are planning to in the future — a 20-year term policy might not be the most suitable choice. If you choose this policy now and have a child in a few years, the policy might expire before your children are fully grown.
Andrea just got married and would like to have a child in a few years. If she purchases a 20-year term now, her child might only be in middle or high school by the time her policy expires. In this situation, a 30-year term might be a more suitable choice for her needs.
A 20-year term life policy could also be less advisable if your spouse depends on your income, and you have more than 20 years left in your career. To fully protect your spouse, you might need coverage that will last for at least the rest of your career.
How Much Does a 20-Year Term Life Insurance Policy Cost?
How much you pay for a 20-year term life insurance policy depends on a number of factors:
- Death benefit amount
- Cost of riders
- Your age
- Your gender
- Your health status
- Your family history
- Your lifestyle and occupation
- Your tobacco use
Remember that your actual policy costs will vary depending on your personal underwriting results. According to Forbes Advisor, here are several average term life insurance rates by age, term length and death benefit payout.1
- Average Term Life Insurance Rates by Age: The average cost of a 20-year term life insurance policy with a $250,000 death benefit for a 30-year-old male is $159 annually; for a 30-year-old female, it is $142 annually. That same policy costs an average of $477 per year for a 50-year-old male and $378 for a 50-year-old female. Obviously, the older you are, the more you are likely to pay.
- Average Term Life Insurance Rates by Term Length: The average cost of a 20-year term life insurance policy with a $500,000 death benefit per year is $246 for a 30-year-old male and $204 for a 30-year-old female. Just for comparison, the average cost of a 30-year term life policy with the same death benefit would be $381 per year for a 30-year-old male and $317 per year for a 30-year-old female.
- Average Term Life Insurance Rates by Death Benefit Payout: With a $1,000,000 death benefit, the average cost increases to $525 per year for a 30-year-old male and $1,172 per year for a 30-year-old female.
Any Other 20-Year Term Life Considerations?
Twenty-year term life insurance could be a good starter policy. You could use this policy as the base of your coverage and then buy additional shorter-term policies to complement your other insurance needs as your financial plan becomes clearer. Remember, you can have more than one life insurance policy.
You could also consider a convertible term life insurance. Convertible term life insurance combines the affordability of term life with the flexibility of permanent life insurance. With a convertible term policy, you can lock in lower premiums now while you're young and healthy. Later on, you have the option to convert to a permanent life insurance policy without additional medical underwriting. This allows you to get lifelong coverage in the future, even if health issues arise down the road. Convertible term life gives you insurability protection now with the ability to switch to permanent coverage when you need it.
Above all, it might be helpful to review your options with a trained insurance professional to make sure the term you select is appropriate for your insurance and financial goals. With some self-reflection, research and a discussion with a financial representative, you could determine whether 20-year term life insurance is right for you.
Sources
- Average Cost Of Life Insurance. https://www.forbes.com/advisor/life-insurance/how-much-is-life-insurance/.
