How Long Should your Term Life Insurance be?
Life insurance can seem like a confusing topic, which is why many people who would be well-served by a life insurance policy don’t have one yet. Fortunately, term life insurance is relatively easy to understand. You pay a fixed premium for a fixed amount of coverage, and the policy is in force for a fixed amount of time. The policy’s time in force is called the term, hence the name.
Determining Term Insurance Length:
Many families and individuals purchase term life insurance with a specific coverage goal. There are many factors to consider when determining how long you should purchase this type of protection. Here are a few common examples we suggest reviewing when considering to purchase term insurance.
If you just bought a new home with a 30-year mortgage, you just assumed a 30-year financial commitment and a 30-year term policy is a logical choice. In its purest form, life insurance is income replacement. In the case of a 30-year policy, you might be buying the policy to replace the income needed to pay the mortgage if you pass early. The death benefit pays your beneficiary who may still have financial responsibilities, like the mortgage or young children. In many households, they require two incomes to pay the bills and maintain a standard of living. The loss of one income can be devastating financially, possibly forcing the loss of the home or other financial hardships.
When choosing a term for your term life insurance policy, you’ll want to consider the length of your financial commitments as well as who is dependent upon you financially. A spouse, for example, may have enough in savings or income to survive if you pay off the house and the kids are grown. However, a younger family may struggle if the household loses one income.
Children are another common reason to purchase life insurance. If the primary goal of the policy is to provide for children, a twenty-year term policy might be an acceptable choice, depending on the age of the children. In other cases, you can purchase term policies to cover short-term financial commitments, such as a car loan or a 5-year business loan.
Expect rates to be lower for the shorter term and lower coverage amounts. There may be some surprising news, however. Rates for life insurance has been declining in recent years, making coverage more affordable than you might think. If you’ve been considering a life insurance policy, reach out to your broker to discuss your needs and design a policy customized to your family.