How Long Should the Term be for Your Life Insurance

How Long Should the Term be for Your Life Insurance?

Life insurance can seem like a confusing topic, which is one reason 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 amount of time the policy is in force is called the term, hence the name.

Many families and individuals purchase term life insurance with a specific coverage goal in mind. For example, 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 maybe young children. In many households, two incomes are required 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 the house is paid off and the kids are grown. A younger family, however, may find themselves struggling 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, term policies are purchased 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 for lower coverage amounts. There may be some surprising news, however. Rates for life insurance have been coming down 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.



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