Choosing Term Length For Life Insurance
Hung up on which term length to choose for your life insurance policy? Term life insurance is a popular form of life insurance because it’s affordable and often easy to get.
Unlike whole life insurance, term life is temporary. However, you do get to choose how long your insurance lasts by deciding on a term length. There are various different term lengths to choose from, so how do you find out what’s right for you?
Understanding the ‘Term’ Aspect of Term Life Insurance
With a term life policy, you’ll choose a term length, usually anywhere from 10 to 30 years, and pay a monthly premium in exchange for coverage. The coverage amount can vary depending on how much life insurance you need.
Paying your monthly premium throughout your term means that your coverage is current, and your beneficiary would be eligible to receive the full coverage amount if you passed away before the end of your term.
This means, if a 40-year old man purchases $500,000 of life insurance with a 30-year term, and passes away during the term, his beneficiaries would eligible to receive the $500,000 death benefit.
With whole life insurance, you have permanent coverage with a fixed death benefit and a portion of your premium payments build cash value for the policy. The cash value grows with interest, and policyholders can borrow from it in the future if need be. Due to this, whole life insurance premiums are more expensive than term life.
Term life can provide you with plenty of coverage at an affordable monthly rate which is why it’s a great option for most people.
How Long Should Your Term Life Insurance Policy Last?
So when it comes to choosing a term life policy length, how long should it be? 10 years? 20 years? 30 years? It’s not always such an easy decision. There are three factors you should take into account when choosing your term length for life insurance.
Generally, a longer level term can lead to a higher monthly premium. This is because you’re locking in one rate for an extended time frame. This may or may not be a huge price difference with a term policy, but it’s something to consider if you’re on a budget.
Think about how much you can comfortably afford to spend on a term policy. Your coverage amount will also affect the monthly premium. As a result, you can get a quote and move around different coverage amounts and term lengths until you find what works for your budget.
Your current age is another factor you should consider when deciding on a term length. If you are 30 years old now and you get a 30-year term life insurance policy, you will be 60 years old when it expires.
At that age, you may or may not want to apply for a new life insurance policy. If you do choose to reapply for coverage, you’ll be quoted at a higher monthly premium due to your age.
If you were to buy a 10-year term instead, you’ll be 40 years old when your term policy expires. At that time, you’ll likely have fewer medical risks than you would at age 60 and could still receive a low rate. But if you do have some medical issues at age 40, you’ll be paying a lot more. Or, you could be considered too high risk and have a harder time getting approved term life coverage.
3. Your Needs
Finally, think about why you truly want life insurance. We all have our reasons. On the surface, you want to protect your family, but get clear on how life insurance can help.
Do you want to provide your spouse with enough to pay off the house in your absence? If so, how long do you expect to have your mortgage?
Do you want to enable your kids to keep attending private school if you were no longer around to help fund this expense? If so, in how many years will they be out of school?
You can certainly choose your length of term life insurance based on the reasons why you want to become insured in the first place as these reasons can change over the course of your life.
What Happens When Your Term Life Insurance Ends?
All term policies will eventually end. What does this mean for you?
If you outlive your term life insurance policy, your coverage expires after your term ends. The premium payments you made during your term kept your coverage intact, but once the term life insurance expires, you no longer have coverage.
However, you do have a few options.
You can apply for a new term life policy, but you’ll be faced with a higher premium since you will be older than you were when you signed up for your last term policy. The option of renewing your term life policy depends on your insurance provider so it’s best to check with them before you consider this. You also might have the option to convert it to a whole life policy, but that’s only if your insurance provider allows it.
When your term life insurance policy ends, it’s often a great time to reassess your needs and current situation. As you apply for new life insurance, you need to consider your current state of health, what your liabilities are, and which term length for life insurance would best suit the needs of your loved ones.