The wrong term by five years can cost you thousands-or leave your family short when they need it most. The fix isn’t guesswork. It’s matching your cover length to the real-life timelines you’re protecting: your kids’ independence, your mortgage finish line, and your retirement age.
Term life insurance is a type of life cover that pays a lump sum if you die within a defined period or until a policy expiry age. The “right” term equals the years your family stays financially dependent, your debts last, or you plan to retire-whichever is longest.
TL;DR
- Pick a term that covers the longest of: years until mortgage is repaid, years until the youngest child is self-sufficient (often age 21-22), or years until your planned retirement.
- Quick rule: choose the maximum of these three and review every 2-3 years. If you’re in Australia, many policies cover you up to a high expiry age (often to age 99 for death cover); use the rule as your review horizon.
- Common choices: 10 years for short debts/no kids; 20 years for families with school-age kids; 25-30 years if you’ve got a long mortgage or toddlers.
- Premiums: Stepped starts cheap but rises each year; Level costs more upfront but stabilises long term. Pick based on how long you’ll hold the cover.
- Sanity check: If your term is shorter than your biggest financial timeline, extend it or plan staged cover.
What “term length” actually means (and why Australia is quirky)
In the US and UK, “20-year term” or “30-year term” is common: your cover ends after that many years unless you renew. In Australia, many retail life policies don’t have a strict 20- or 30-year cut-off for death cover; they often keep cover in place to a high expiry age (commonly age 99) while premiums adjust annually. So the question “how many years?” becomes “how long will I need this cover before I cancel or reduce it?”
Life insurance is financial protection that pays beneficiaries when the insured dies. In Australia, standalone death cover often continues to a high expiry age, while riders like TPD/trauma can end earlier (e.g., age 65-70).
Whole life insurance is permanent cover designed to last for life, often with a cash value component. It’s less common in Australia’s retail market than in North America and usually far more expensive than term cover for the same death benefit.
The takeaway: the method to pick the “right years” works in any market. If your policy runs to an old age (Australia), treat the result as your planned holding period and review date. If your policy has a fixed end date (US/UK), pick that term directly.
How to pick your term length: a simple, reliable formula
Answer three questions. Your term should cover the longest timeline.
- Kids timeline: How many years until your youngest child turns 21-22? (That usually covers school and most tertiary study.)
- Mortgage timeline: How many years are left on your home loan? (Include any fixed-rate end, likely refi date, or planned extra repayments.)
- Retirement timeline: How many years until you plan to retire? (Use your realistic target-say, age 60-67.)
Your minimum term equals the maximum of those three numbers. If you want a fast guardrail: if two of those timelines are within five years of each other, pick the longer one and sleep easy.
Superannuation is Australia’s retirement savings system. Your super balance and projected retirement income can shorten the years you need full cover if they already secure the survivor’s lifestyle.
Optional add-ons to tighten the fit:
- Income gap years: If one partner relies on the other’s income, add 3-5 years for re-skilling or career disruption.
- Business/HECS/other debts: Add the payoff years for any non-mortgage debt that would strain your family if you weren’t around.
- Caregiving roles: If you provide unpaid care (kids, parents), add 2-3 years to fund replacement care while life adjusts.
Real-world examples that show the math
Example 1: Couple, two kids (4 and 7), 27 years on the mortgage, planning to retire at 65 (in 31 years). Kids timeline: 18 years until the youngest hits 22. Mortgage: 27. Retirement: 31. Pick 31 years. If you’re in Australia, you might hold cover until age 65 and then reduce. In the US/UK, you’d likely choose a 30-year term.
Example 2: Single homeowner, no dependants, 9 years left on a home loan. Kids: 0. Mortgage: 9. Retirement: 23. If no one relies on your income, the mortgage is the only driver. A 10-year term (or holding cover for ~10 years) makes sense-unless you plan to add dependants soon.
Example 3: Parents with teens (15 and 17), 12 years to retirement, 8 years on mortgage. Kids: 6-7 years to age 22. Mortgage: 8. Retirement: 12. Pick 12 years. A 10-15 year window is about right.
Example 4: Self-employed, variable income, toddler at home, 24 years to retirement, big new mortgage (30 years). Kids: 20. Mortgage: 30. Retirement: 24. Pick 30 years and consider a second smaller policy that lasts 20 years for the kid timeline. Staggering policies can reduce costs.
Premium mechanics: why the same cover costs more or less over time
Stepped premium is a premium structure that starts lower and increases each year as you age. It suits short-term needs or tight early budgets, but it climbs substantially in later years.
Level premium is a premium structure designed to stay steadier across the policy, typically to a set age (e.g., 65/70). It costs more initially but can be cheaper across long holding periods.
Practical guide:
- Holding cover for less than ~10 years? Stepped often wins on total cost.
- Holding for 15-25 years? Level can be cheaper by year 12-15 for many ages.
- Unsure you’ll keep it that long? Start stepped and switch to level later if your insurer allows (watch fees and age-based recalculation).
Ballpark numbers (Australia, non-smoker, good health, $1m sum insured, indicative only): age 35 stepped might start around AUD $50-$80/month; level could be 1.5-2.2x that upfront. At age 45, stepped could be $120-$200/month; level again higher initially but avoids large jumps later. Underwriting, occupation, and health can shift these by 30-50%.
Income protection insurance replaces a portion of your income if illness or injury stops you working. It complements life cover by protecting living expenses while you’re alive.
Total and permanent disability (TPD) insurance pays a lump sum if you become permanently disabled. In Australia, TPD often ends earlier (e.g., age 65-70), so match its end age to your working life.
Premiums hinge on age, smoking status, health history, occupation risk, and sum insured. Annual indexation (like CPI + 5% options) can increase both cover and premium-great to beat inflation, but check if you can opt out some years.
Common term choices: when 10, 20, or 30 years actually fit
| Term length | Best for | Watch-outs | Typical alternative |
|---|---|---|---|
| 10 years | Short debts, no kids, or bridging until planned retirement/downsizing | May end before kids are fully independent or mortgage is done | Keep a small back-up policy for childcare/education |
| 20 years | Families with school-age kids; mid-sized mortgages | Can fall short if you’ve got toddlers or a 30-year loan | Stack 20-year + 10-year policies to mirror needs |
| 25-30 years | Young families, long mortgages, single income households | Higher total premiums if your needs shrink faster than expected | Stagger policies so some cover drops away earlier |
If you’re in Australia and your death cover runs to a high expiry age, map these “terms” to your planned holding period. You might keep full cover for 25 years and then reduce or cancel, even if the policy could technically continue.
Australia-specific notes you shouldn’t skip
Default cover through super can change the math. Many funds include basic life and TPD cover. It’s often cheaper but may be limited in features, definitions, and sums insured. Check if beneficiaries align with your estate plan and whether premiums inside super eat into retirement goals.
Useful authorities to sanity-check your plan: ASIC’s Moneysmart for plain-English guidance, APRA for industry stats, and the ABS for family and income data that helps you set realistic replacement targets. If you want a rule of thumb: many planners in Australia aim to replace 7-10 years of after-tax income for a family with young kids, plus debts and a buffer for education. Adjust if your partner earns well or if your super is already strong.
Also watch module end ages: TPD might end at 65-70; trauma/critical illness usually ends earlier than death cover. Align those end ages with your planned working life, not just your death cover horizon.
Checklist: lock in the right number of years
- Youngest child’s age now and target independence age (usually 21-22)
- Years left on the mortgage (be honest about extra repayments)
- Years to retirement (target age you’ll actually hit)
- Any business, personal, or HECS/HELP debts and their payoff years
- Partner’s income and resilience (job stability, flexibility, leave)
- Super balance and insurance inside super (amount, beneficiaries)
- Which premium style matches your horizon: stepped for short; level for long
- Indexation on/off and whether you’ll review it annually
- Estate plan basics: will, binding nominations, enduring power
Related concepts you’ll bump into
Beneficiary is the person or entity who receives the payout. Get this right-update it after births, marriages, and separations.
Underwriting is the risk assessment the insurer uses to set your premium and terms. Health, occupation, and lifestyle factor in; full disclosure avoids claim issues later.
Inflation is the general rise in prices over time. If your cover amount never grows, its real value shrinks; indexation offsets this, but raises premiums.
Thinking in these terms helps you pick a term that protects the lifestyle you actually live, not a neat round number. If you’re weighing choices, underline this phrase: life insurance term length should match the life timeline you can’t afford to miss.
When shorter or longer than the formula makes sense
- Shorter: If you have significant liquid assets, no dependants, and a small loan, a 5-10 year window might be fine-especially if you expect a big cash event (sale of a business, inheritance).
- Longer: If childcare or education costs are high, or if one partner will pause their career, go long-even if the mortgage ends earlier. Your real risk is the income gap years, not just the debt.
- Staggered: Use two policies: a larger one that ends when your youngest finishes school, and a smaller one that runs to your retirement or mortgage end. You get big protection when you need it, and natural cost drop-off later.
Quick cost hygiene so you don’t overpay
- Don’t chase the cheapest premium with the wrong term. A 20-year bargain doesn’t help if you actually need 30 years.
- Compare stepped vs level across your holding period, not just year 1. Ask your adviser or insurer for a 10-20 year projection.
- Quit smoking 12 months before applying if you can. Non-smoker rates are often 30-50% lower.
- Bundle smart, not blindly. Multiple policies with different terms can map better to your timelines and cut waste.
- Review after life events: birth, new job, refinance, separation. Trim or extend as needed.
Mini-guide: run your numbers in 7 minutes
- Write ages: you, partner, kids. Note planned retirement age.
- List debts with years left: mortgage, car, business, HECS/HELP.
- Estimate dependants’ end-date: youngest child to age 22.
- Pick the longest of those three: that’s your base term.
- Add any extra income gap years (3-5) if one income is critical.
- Decide premium style: stepped for short-term; level for long-term.
- Set a review reminder every 24 months; cut or extend as life changes.
A quick comparison you can screenshot
| Premium style | Ideal holding period | Pros | Cons |
|---|---|---|---|
| Stepped | < 10 years | Lower upfront cost; easy entry | Rises each year; gets pricey if you keep it long |
| Level | 15-25+ years | Stable long-run pricing; often cheaper by year 12-15 | Higher initial cost; not ideal if you cancel early |
Next steps and common snags
- If your mortgage finish and kid independence dates are within 3 years, pick the later date.
- If you plan to move or upgrade, add 2-3 years to cover a bigger future loan.
- If your policy runs to age 99 (Australia), decide your target “reduce/cancel” year now and pop a calendar reminder.
- If you’ve got cover in super and outside super, align both to the same horizon so you’re not double-covering for too long.
Frequently Asked Questions
What term length do most families pick?
Many families land on 20-30 years because it covers a full mortgage cycle and kids to independence. If your kids are already teens, 10-15 years can work. The best term is the longest of kids, mortgage, or retirement timelines-not a default number.
I’m in Australia-do I even choose a fixed term?
Many Australian policies keep death cover in force to a high expiry age (often to age 99), with premiums adjusting annually. Treat “term length” as your planned holding period. Use the same formula-kids, mortgage, retirement-and set a review schedule to reduce or cancel when the risk passes.
Is 10-year term enough?
It’s fine if you have no dependants and your debts end within a decade. If you have young kids or a long mortgage, 10 years is usually too short. You can stack: a 10-year policy for short-term needs and a second policy that runs longer.
Is 30-year term overkill?
Not if you’ve got toddlers and a 30-year mortgage. The risk is paying for protection you won’t need if your situation improves faster than expected. To hedge, take a large policy for 20 years and a smaller one for 30 years; you’ll drop cost as kids grow up.
Should I choose stepped or level premiums?
Match it to how long you’ll keep the cover. Under 10 years, stepped often costs less in total. Over 15-25 years, level commonly wins by mid-life. Ask for a projected 15-20 year premium schedule to compare real totals, not just year one pricing.
How does insurance inside super affect my term?
If cover in super already fills part of your need, you may shorten the outside-super policy or reduce its sum insured. Check beneficiary rules, claim definitions, and any end ages for TPD. Align both to the same horizon so you don’t over-insure for too long.
What if my plans change mid-term?
That’s normal. Review every 2-3 years or at life events. If you pay down the mortgage faster or the kids become independent earlier, cut cover to save premiums. If you add dependants or take on a bigger loan, extend or layer another policy.
How big should my cover be alongside the term?
A common starting point is debts + 7-10 years of income + education/childcare buffer − liquid assets − super payouts. If your partner earns well and could downsize, you might reduce that. If they rely heavily on your income, lean higher and keep the term long enough to cover the whole dependency window.
References you can trust: ASIC’s Moneysmart (life insurance guides), APRA (industry data), and the ABS (household and income stats). Use them to double-check your assumptions, then lock in a term that mirrors your real timelines, not a round number.
Before you close this tab, write three numbers on a sticky note: years to mortgage finish, youngest child to age 22, and years to your retirement. The biggest one is your term.
Moneysmart (ASIC) is an Australian government resource with guidance on insurance, debt, and investing; it’s a credible place to cross-check life insurance decisions.
APRA is Australia’s prudential regulator for banks, insurers, and super funds; its reports provide context on insurance trends and sustainability.
ABS is the Australian Bureau of Statistics; its household and income data help estimate realistic income replacement and dependency periods.
