A new method on the evaluation of insulation oil was proposed. Terahertz time-domain spectroscopy (THz-TDS) was applied to investigate the properties of the insulating oil. For the diagnostics of oil degradation, three kinds of oils have been analyzed by THz-TDS. The degraded oil showed different optical and electrical constants compared with a new one. Generally, the power absorption coefficient, the refractive index, the dielectric constant and loss $tan{delta}$ of the oil increase as the aging of insulating oil proceed. And the characteristics of two kind of insulation oil, 1-4 and 7-4, was compared in terahertz spectral region. Difference in refractive index and complex dielectric constant has been observed between the samples. The results of this study suggest that THz-TDS is a promising new means for evaluating degradation and identification of insulating oil.