Term life insurance is a popular type of insurance. It is simple, affordable, and gives you the ability to make straight-forward insurance decisions that meet your specific needs and the needs of your family.
1. Term Length
Term life policies are typically available in different term lengths, like 10 years, 15 years, 20 years, or 30 years. When you choose the term length, think about how long you will need to rely on the benefits from the policy. If you have children, something to think about is how old they are now and how long they will live in the home before branching out on their own.
Another situation to consider is the debt that you have. Often a term life policy is purchased to cover the amount of debt owed on a mortgage or asset (something you “own” of value), so that policy proceeds will pay off the debt in the case of your death.
Buying the amount of coverage for the length of time you need the policy to cover certain risks will save you money. Think about what you need and for how long. Then consider the different costs, based on different dollar coverage amounts and different term lengths. The more coverage you have and the longer the policy is in place, the more it will cost you in monthly premiums.
Many people will choose a 30-year term length. This is because it’s typically the longest term length available and it provides your family with coverage for an extended period. If you are newly married, for example, buying a 30-year term life insurance policy at a young age will be a cost-effective and wise choice. Another example is when two people share debts. The best choice in this situation is a term length that would cover the period that those debts are still outstanding.
Assume you begin working at age twenty and purchase a home with a 30-year mortgage. A 30-year term life insurance policy purchased at the same time would provide assurances that the home would be paid for by retirement age at 50. Buying a term life policy when you are young and healthy will mean very low premiums for the entire term length of the policy. The main breadwinner in a family should consider a 30-year term policy. This is because if your spouse or partner is reliant on the breadwinner’s income, a term length policy will last him or her to near or at retirement. The policy provides a cushion while you build your estate over time.
Having children in the family is often a reason to consider the purchase of a term life policy for one or both parents, to provide a financial cushion in the event of the death of the parents. In this example, the children would be taken care of from the life insurance proceeds.
A term life insurance policy can be very affordable. Premiums for non-smoking adults in good health might choose to purchase a 30, 20, or 10-year term policy during their lifetime. If you are in your late 30s, purchasing a 20-year policy is just the right time to cover children or family needs and to make sure that debts are paid in full. A 20-year term policy costs less than a 30-year term length policy.
Think about a newborn. If a parent purchases a 20- or 30-year term life insurance policy, this covers the financial needs for the first 20 or 30 years of the child’s life.
It is better to have a smaller safety net than none at all. Picking the best term length to meet your family needs at a cost that you can afford over a long period of time is important.
Losing someone you love is very difficult. You would not want to leave a lot of debt for your family to have to worry about, adding to an already difficult situation. Whether it’s a home mortgage on student loans, a term life insurance policy will add a layer of protection to pay off or reduce debts you might leave behind. If you have a business, it’s a good idea to consider adding this cushion so that business debts can be paid from the insurance proceeds so that the business can continue to operate.
When you are 20 or 30 years old, it is probably hard to think about retiring. However, this is one reason that many people purchase a term life policy. It’s because the policy proceeds provide financial security and peace of mind until you reach retirement.
Some families choose a 15-year term policy for coverage while their kids are in school. Other families are taking care of aging parents. It is worth thinking about what your plans are for taking care of young and older relatives now and in the future. Sometimes a 15-year term length matches the period needed for a cushion or back-up, in case of your death, until parents’ social security kicks in.
If you are 15 years or less away from retirement or financial independence, congratulations! You have worked hard and planned to get to where you are today. You might want to consider a 15-year term life insurance policy to assure financial security until all your debts are paid or full financial independence is reached. This could help your loved ones continue to enjoy and benefit from everything you have worked for over the years.
Life is full of surprises. Maybe you decide to buy a bigger house or have another baby. Instead of putting off the purchase of life insurance coverage or canceling a policy, consider stacking policies with different term lengths to provide financial security for your family. Locking in low rates while you are young, adjusting for changes as they occur by adding coverage that is a good match for your needs, these are both strategies that help protect your family and your assets over the long haul.
It’s a good idea to keep things simple. Purchasing a term life insurance policy is the most affordable choice. There are many factors to consider, like your financial goals, debts, your budget, number of dependents in your family, and family structure. And having a wise and trusted life insurance advisor will help you keep decisions simple and focused on your family needs.