If you’re considering term life insurance, then wondering about the length you need is a common concern. Term life insurance is an excellent decision for individuals with a family, a home, and other financial obligations they want to cover if anything happens to them. When you purchase term life insurance, then you know you’ll have a safety net that can help pay the mortgage, put your kids through college, and help your family with other financial matters if you were no longer alive and earning a paycheck.
Term life insurance is a very common choice for individuals with families who want to ensure their loved ones are supported if anything tragically happens to them. Thus, you can view purchasing term life insurance as another way to show your love and support for your family. Plus, you’ll get peace of mind knowing they’ll be fine if anything horrible happened.
What is Term Life Insurance?
Term life operates as an agreement between you and your insurance provider that says if you pass away during the policy period, your beneficiary or beneficiaries will receive a death benefit. So, you can see that term life insurance will give you peace of mind that your family will be fine if they are financially dependent on you and in case anything happens to you. Another benefit of purchasing term life insurance is that it is very affordable compared to whole life policy options.
If you consider purchasing a term life insurance policy, you’ll need to think about two factors. First, how long do you want your term policy to cover? Second, how much life insurance coverage do you think you and your family require?
When you purchase a term life insurance policy, the yearly cost of your insurance will stay the same each year throughout the entire term timeframe. As soon as that term timeframe ends, you will be given the option to renew that same policy. However, at the end of your term, you’ll be much older, so you’ll be renewing at a higher rate than when you previously purchased your policy.
If you wind up living longer than the timeframe on your term life policy and you don’t renew, then your life insurance will be over, and your policy will expire. You don’t get a refund regarding what you paid in unless you purchase a form of premium term life insurance, which typically costs more. Most people purchase term life insurance to replace an income if they pass away, offering financial support to their families. Thus, individuals who want life insurance that can offer financial support and some income for their family financially dependent on them often purchase this type of insurance.
Sometimes individuals purchase term life insurance to ensure that their mortgage is covered and their home remains in their family in case of their death. Others worry about their debts being passed onto other family members and see term life insurance as a way of handling those related expenses. Still, others want term life insurance to ensure their children will have financial support until they graduate college, ensuring plenty of tuition money and coverage for living expenses if anything happens to them.
These are just a few of the most common reasons people purchase term life insurance.
How Long Should My Term Life Policy Be?
Term life insurance policies can cover different timeframes. So, wondering how long your policy should be is a common question. If you want to assess the best length for your term life insurance, then think about your debt or the situations you want to cover in case you pass away. For instance, if you are purchasing term life insurance to ensure your children are financially supported as they make their way through college, and they’ll finish in eight years, then you may want to purchase a ten-year term life insurance policy. Let’s suppose you just purchased a home, are the only income earner, have a spouse and children, and now you have a thirty-year mortgage. If that’s the case, then purchasing a thirty-year life insurance plan to ensure your family remains in that house would be a great option.
Thus, selecting the length of your term life insurance policy depends upon your situation and your family’s needs. Term life insurance is available in a variety of timeframes, depending on your insurance provider. For example, most term life insurance policies have a duration of five, ten, fifteen, twenty, twenty-five, or thirty years, with the most common durations being twenty years followed by thirty years.
Also, if you feel your family’s financial necessities might be longer than thirty years, then it may be wise to purchase a permanent life insurance policy, like universal life insurance. However, these types of life insurance policies are much more expensive. So, if twenty or thirty years seems like enough time, then term life insurance would still be your most affordable option.
How Much Term Life Insurance Coverage Should I Purchase?
When you are trying to assess how much term life insurance coverage you should purchase, you should assess your debts and any other obligations you wish to cover. For instance, if you are worried about replacing your income or ensuring that your family can pay off the mortgage, then you should factor that into your term life insurance coverage amount. If you want to ensure that your family can pay the mortgage off, then you’ll certainly need enough coverage for that. If you are worried about extra expenses and replacing your income after that, then you’ll need to assess how long you think your family would need that extra money.
It’s not uncommon for people to think they want to purchase a one-million-dollar term life insurance policy. However, even under a term policy, that much life insurance can still cost a pretty penny. So, the typical term life insurance policy coverage amounts range from about $100,000 to $500,000, depending on the cost of a person’s mortgage and any other expenses they wish to cover in case of their deaths.
While we are on the subject of home prices and mortgages, it’s vital to note that the amount of coverage you feel your family should have from your policy can vary drastically based on location. If you live in New York City, the cost of living and mortgages is substantially higher. Individuals living in pricy locations, like New York City or Southern California, probably need more coverage than somebody living in Iowa or South Dakota. So, considering the amount of rent, the cost of living, and the prices of homes all need to factor into your decision.
Particular factors about you will also impact the amount you pay for your life insurance. For example, your age, gender, weight, height, health history, smoking history, and substance abuse history will potentially impact your rates. For instance, on average, smokers pay nearly double for all types of life insurance policies, including term policies. So, this is another factor to consider before making your decision.
20-Year vs. 30-Year Term Life Insurance Policies: The Differences
Term life insurance policies that are longer in duration can last up to twenty or thirty years. The most popular term life insurance timeframe purchased, no matter the age of the policy buyer, is twenty years. Still, that doesn’t mean that thirty-year policies, which come in second in this category, aren’t worthwhile. So, we’ll cover the basic differences below to help you make your decision. No matter which term life policy length you decide upon, both policies are common and basic term life insurance options.
Both options are pure life insurance categories that should give both you and your family peace of mind. Keep in mind that with term life insurance, you won’t be getting both life insurance and the cash value growth offered by whole life insurance. Instead, you’ll get the basic death benefit coverage in case anything happens. Still, the advantage of this is that no matter what length you pick (twenty years or thirty years), you’ll pay a fraction of the amount on the premium you would have paid if you opted for a while life insurance policy. So, you’re getting plenty of affordability for your peace of mind.
Since term life does not build up cash value you can’t borrow anything using your policy like you could with your whole life. Still, that doesn’t mean you aren’t getting advantages. If you are worried about not getting any cash value growth out of term life insurance you really shouldn’t be. The idea with term life insurance is to pay the least you have to pay to protect your family in case anything happens to you. With the extra money you can use as you choose to either save for the future or just to have extra money available to you today.
The vital variation between these two term life insurance policies is the length of the policy. One option lasts a full decade longer than the other. So, it might seem that opting for a thirty-year policy is the best choice. However, you’ll still need to consider your options because thirty-year policies are not as affordable as twenty-year policies.
Every year, a thirty-year term policy will cost much more because the longer the coverage period, the more you increase your chances of passing away while still owning the policy. So, the insurance company will make adjustments considering this increased potential over a thirty-year time frame, which wouldn’t be as much of a factor with a twenty-year policy.
Some people do need the full term life coverage timeframe and purchase a thirty-year policy. Still, others are better off with a twenty-year policy. Depending on your needs and what you can afford, you’ll need to factor these concepts into your line of thinking.
The Prices of Policies
One of the biggest benefits of a twenty-year term life insurance policy is the reduced cost. For instance, a man that is twenty-five years old, healthy, and doesn’t smoke, can buy a twenty-year term policy and receive a $500,000 death benefit for as little as $25 monthly, or about $300 yearly. For most people, that’s very affordable and certainly worth it, even if you are on a tight budget.
Let’s suppose that you have two young children that are five and six years old. If you purchase a twenty-year policy, you’ll be covered into your children are twenty-five and twenty-six years old, meaning they’ll not only be well into adulthood but also supported throughout their expensive years of a college education. It’s not uncommon for parents to ensure their children will be financially supported until they graduate college.
We can also consider if you have fewer than twenty years left paying off your mortgage and don’t have many other debts. If that’s your potential situation, then you more than likely won’t need a term life policy that lasts longer than twenty years to ensure your family’s debts are paid in case of your death. If you are the type of person that enjoys saving and investing, then you may find yourself well on your way to retirement by the time that policy terminates. That means that even if you renew your term at that point, you can review it for far less, making it more affordable for you.
For example, let’s suppose you are thirty years old and decide to purchase a twenty-year term life insurance policy covering $500,000. After your term policy ends, you may have amassed about $250,000 in savings and investments. So, if you decide to renew your term life policy, you could decrease your death benefit to $250,000 and decrease your monthly payments.
Your other option is a thirty-year term life policy, which means you get an extra decade of life insurance, obviously a major advantage. Still, your premium on a thirty-year term life policy will be almost fifty percent more than what you’d pay for a twenty-year policy. So, you’ll need to consider if you feel that extra decade is worth that amount.
So, let’s say the same twenty-five-year-old healthy male in our example above that doesn’t smoke decides to get a $500,000 policy on a thirty-year term. The price of that policy would be $450 yearly, where the twenty-year was $300. So, that means paying about three thousand dollars more for the policy. If your budget is very tight, then this may not be the best option.
Still, you’ll get other benefits if you opt for the longer policy. Not only will you get the extra decade, but you’ll have the next best thing compared to whole life insurance. Also, the thirty-year term policy length covers just about anything you’d need to worry about before passing away, like your mortgage, your children graduating college, and your spouse retiring.
When you purchase your term life insurance, remember to shop around to get the best rates. You have several options in insurance companies. Also, keep in mind that one of the best ways to shop around is hiring an independent insurance agent. Independent agents work for their clients and with many life insurance providers, meaning they can help you shop around to get the best rates.
If you’re ready to pick your life insurance plan and check out your options, consider working with us! We are independent agents that shop around with different companies to get you the best rates at no extra cost. Contact us today, and we can get the best options to you quickly!