20-Year Term Life Insurance—Should You Buy It?

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A 20-year term life insurance policy is coverage that guarantees your premium and death amount to remain level for 20 years. Freedom in our culture may be attributed to having choices. However, the more options you have, the more confusing things can be, and for some, this is a good reason to procrastinate. In this post, I will clarify the variety of 20-year policies you can buy, who should buy it, and the associated costs.

Related: Sample term life insurance rates

What Does a 20-Year Term Life Insurance Policy Mean?

A 20-year term means that your premium will stay the same for the next 20 years. Level term life insurance is temporary protection for a distinct period, usually 10–30 years, with the most common one being 20 years. Two guarantees come with any chosen period: your premium payment and death benefit will stay the same.

The principles are the same whether you buy 10-, 20-, or 30-year term. The longer the duration, the more you will pay since the higher the possibility of passing away. When buying a 20-year term, your premium is used to only pay for the cost of insurance (COI) and nothing else. This is where it gets the nickname “pure insurance”.

Why Is Term Life Cheaper Than Whole Life?

There are two reasons:

  1. When paying your premium for whole life insurance, a portion is used to pay for the cost of insurance, and the remainder is used to build cash value that you can use in the future for a loan or when you surrender the policy. With term, you only pay for the cost of insurance without any added savings or investment components.
  2. The death payout is not guaranteed on term life insurance because you are not guaranteed to die in the next 10, 20, or 30 years. When buying whole life, which is a permanent coverage, you will die at some point, meaning the insurer will need to pay the death benefit.

Related: 5 ways to save money on life insurance

Advantages of 20-Year Term Life

  1. Term life insurance is the most economical plan you can buy. Cost plays a significant factor in our decisions, and a 20-year term may be just the middle ground between the 10-year plan, which may be too short, and the 30-year, which may be too long and more expensive.
  2. It’s a good option to address obligations that will disappear over time. If you have 20 years left on your mortgage, it may be wise to get a 20-year term. Another example could be if your children are ten and thirteen years old. In 20 years, they will be out of the house and will support themselves financially. This would be a lot different if you haven’t bought a home yet or are planning to have children. At that point, you may want to consider a more extended term.
  3. Many who buy a 20-year term are middle-aged, in their 40s or 50s. They are thinking about retiring in 20 years and are only looking for an income replacement should they die unexpectedly. They have a plan in place: to accumulate enough wealth in 20 years so they are self-insured and will not need life insurance by that time. A 20-year term makes perfect sense if you find yourself in a similar situation.

Disadvantages of a 20-Year Term Life

  1. A 20-year term may be too short a length if you are a younger individual in your twenties or thirties. Especially if you don’t have children yet, and are planning on having them, you may want to opt for a 30-year term. It’s advisable to buy the longest term possible based on your age so you will not find yourself without coverage when you may need it.
  2. It’s not always available. For instance, if you are over the age of 71, the max length that you can buy will only be 15 years and not 20.
  3. it’s not a good solution if you are seeking coverage for estate planning.

What Happens to a 20-Year Term When It Expires?

Most think that, just because the term expires, you must go and buy a new policy. This is not true. Here are your choices:

  • Buy new coverage: If you are still relatively healthy without significant pre-existing conditions and have a need for another policy, this will be the best solution.
  • Drop it: Be glad you are still around and enjoy this moment. The coverage you bought 20 years ago provided the peace of mind you were looking for. At this point, your mortgage is paid off, you just attended your oldest daughter’s wedding, and you saved enough money over the years to be self-insured. There is no need for life insurance now. Drop the policy and the associated costs.
  • Convert your policy: Most term life has a provision which allows you to convert your policy to whole life or universal life at the end of the term period or before age 70. You will not have to prove insurability, undergo an exam, or go through the underwriting process regardless of your current health condition. Instead, you will be classified with the same class rating you had when you first bought the policy, and you can convert it to whole life or universal life depending on what type of coverage is available.
  • Annual renewable term (ART): At the end of your 20-year term, you could elect to continue with the same coverage you’ve had up to this point. The caveat is this will be the most expensive option as it will be significantly more costly and the rate will increase every year as you age. With most term policies, it expires when the insured reaches age 95.

Which 20-Year Term Policies Are Available?

When buying a 20-year term life you will have three options from which to choose.

  1. A traditional term, also called “fully underwritten”, requires you to undergo an exam as part of the underwriting approval process. A third-party health care professional will schedule the exam at your convenience at your home or place of work. The examiner will ask you the health questions you answered on the application, measure your height and weight, and take your blood pressure levels. You will also be required to take a blood test and provide a urine sample. The insurance company will then review the results from the medical examination and determine if they can issue the policy or need to order medical records.
  2. Return of premium or “ROP” is a term life insurance that returns your paid premiums if you outlive that initial term period. For instance, if you bought a 20-year return of premium policy and paid for it $1,000 per year, at the end of the 20 years, you will get back your paid premium, which is $20,000. Before you jump for joy, understand that “ROP” cost three to four times as much as a traditional term and you also don’t earn any interest on your money.
  3. No-exam term life insurance is another popular option to consider. This particular coverage will not require you to undergo an exam as part of the underwriting process. The underwriter will conduct a phone interview along with public database searches from Medical Information Bureau (MIB), prescription database, and Motor Vehicle Report (MVR). The approval process can take a few minutes to a week, depending on the carrier of choice and your health history. No-exam policies aren’t available for all ages, and it gets costly once you are over the age 50. The face amount for no-exam coverage with most companies is $500,000 with a few exceptions which offer up to $1,000,000. If you need more than that, you will need to take the exam.

20-Year Term Life Insurance Sample Monthly Rates

20 year term life insurance sample rates

20-Year Level Term Male

AGE$100,000$250,000$500,000$1,000,000
20$9.03$12.90$19.69$33.47
30$9.03$13.11$20.12$34.34
40$10.92$17.85$28.38$51.17
50$22.27$40.85$74.39$142.33
60$53.23$110.03$205.97$396.03
70$207.52$411.85$804.87$1546.62
80NANANANA

20-Year Level Term Female

AGE$100,000$250,000$500,000$1,000,000
20$8.26$11.52$16.68$28.17
30$8.26$11.70$17.11$29.04
40$10.23$15.26$24.94$43.67
50$18.09$31.18$55.47$103.07
60$36.98$77.92$139.32$270.11
70$157.21$269.94$531.87$1048.25
80NANANANA

20-Year No-Exam Male

AGE$100,000$250,000$500,000
20$9.92$14.36$20.88
30$9.92$14.59$21.32
40$12.15$20.76$34.97
50$24.63$49.60$87.00
60$64.34$147.70$286.85
70NANANA
80NANANA

20-Year No-Exam Female

AGE$100,000$250,000$500,000
20$9.05$12.82$17.72
30$9.14$13.06$18.18
40$11.53$17.72$27.33
50$20.16$34.71$63.08
60$41.15$90.37$173.03
70NANANA
80NANANA

20-Year Return of Premium Male

AGE$100,000$250,000$500,000$1,000,000
20$16.36$31.75$57.43$104.72
30$16.36$31.75$57.43$108.75
40$32.11$69.17$126.72$227.92
50$75.34$157.96$290.40$565.57
60$85.71$193.82$370.48$730.84
70NANANANA
80NANANANA

20-Year Return of Premium Female

AGE$100,000$250,000$500,000$1,000,000
20$11.75$19.57$33.07$58.29
30$12.53$21.97$37.85$69.60
40$25.49$53.95$101.79$191.84
50$58.29$121.00$221.76$432.08
60$122.06$289.96$539.00$979.44
70NANANANA
80NANANANA

*All rates quoted on this page are for a super-preferred healthy individual who does not use tobacco. Monthly rates are updated as of Aug 2018 and are subject to underwriting approval.*

Last Word

Who should buy a 20-year term and who should avoid it? Your situation, age, affordability, and debt are some of the issues you should consider before purchasing a policy. If you can afford the difference in cost between the 20-year and the 30-year term, take the more extended term. Your current age will also play a role in which term you could buy.

If you are over the age of 71, you will not be able to buy a 20-year term and have to opt for a 15-year length. Your overall health will also impact the rates tremendously and, therefore, can make a 20-year term more affordable than a 30-year. For younger individuals in their 30s, it’s safer to be on a 30-year term life. There are too many scenarios to list here.

However, you can go ahead and run the quotes yourself on this page to compare the rates or give us a call at 866-326-3053 for an unbiased life insurance quote from over 50 companies we represent. We will examine all the options and recommend the best one for you.

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2018-08-08T14:57:44+00:00August 7th, 2018|Categories: Types of Life Insurance|0 Comments

About the Author:

Ron is a licensed life & health insurance broker. He has two amazing rescued pit bull puppies. He also enjoys real food, heavy squats, critical thinking, and reading.

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