Life Insurance

Why Only About 1% of Term Life Policies Pay Out, and Why Many People Over 50 Choose Whole Life

By Florida Family Coverage

Many families pay for term life insurance for years. Then the term ends, and the policy never pays. If you are over 50, it is worth knowing why that happens so often, and how term life and whole life differ before you choose coverage.

The "1%" number, and where it comes from

You may have seen the claim that only about 1% of term life policies ever pay a death benefit. That number comes from a widely cited 1993 study from Penn State University. To be fair, Investopedia reports that the study appears often in books and online, but it could not independently verify it. Whatever the exact number, the reasons are well known: most people outlive their term, and others stop paying and let the policy lapse.

Term life is built to end

The NAIC describes term life as coverage you buy for a certain period, such as 10 or 20 years. It pays only if the insured person dies during that term. Most term policies build no cash value.

Picture someone who buys a 20-year term policy at age 50. The coverage ends at 70. But many people live well past 70. Based on Social Security's 2022 life tables, of the people who reach age 65, about 54% of women and 42% of men are still alive at 85.

Keeping term coverage gets harder with age

Many term policies can be renewed when the term ends. But the NAIC warns that renewal premiums may be higher, and that you may lose the right to renew at a certain age. If your policy cannot be renewed, you have to apply for a new one, and changes in your health can affect whether you qualify and what you pay.

MoneyGeek's 2026 rate research found that a 60-year-old nonsmoking man would pay about $395 a month for a $500,000, 20-year term policy at standard rates, more than 11 times the $35 a month a healthy 40-year-old pays. It also found that many companies stop offering 20-year terms at age 65.

Term life is not a bad product

Term life can be a good fit for a need that has an end date, like a mortgage or raising children. It usually costs less up front. The question is whether your need has an end date.

Why many people over 50 look at whole life

After 50, many people's biggest worry is making sure final expenses, medical bills or a small gift to family are covered whenever they pass. That need does not end at 70.

• It is permanent. The NAIC calls whole life a permanent policy you can keep for as long as you choose, as long as you pay the premiums.
• Premiums follow a set schedule. In ordinary level premium whole life, the NAIC says payments stay the same for the insured's lifetime. Check your own policy.
• It builds cash value. You can borrow against it. Ask how a loan would affect the amount your family receives.
• It can cost less over a lifetime. The NAIC says that if you want coverage for your lifetime, cash value insurance may be more cost effective than term.

What to know before you choose

• Whole life costs more than term for the same amount of coverage, so be sure you can afford it for the long run.
• In some policies, cash value is low in the early years and builds later.
• If you already have a policy, compare it with any new one first.
• Never cancel a current policy until the new one is approved and in force.

This article is for general education only. It is not legal, tax or financial advice. Policy features, premiums, cash values and guarantees vary by insurance company, product and state. Rate examples are from a third-party analysis and are not quotes. Sources: Investopedia, NAIC, What Type of Life Insurance Is Right for You?, NAIC Life Insurance Buyer's Guide, NAIC, Whole Life Insurance, and MoneyGeek (citing the Social Security Administration 2022 Period Life Table).

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