A term life insurance policy is an excellent choice for a first-time policy owner because they’re relatively simple and easy to manage compared to their permanent counterparts. However, unlike permanent plans, term policies eventually expire – that’s why choosing the right term duration is essential to getting the most out of your life plan.
Insurers offer life insurance coverage terms that span 10, 20, or even 30 years and beyond. So how long should your term life insurance last? This guide has all the information you’d need to keep in mind when choosing your ideal coverage duration.
Term Life Insurance Explained
A term life insurance policy is a type of life insurance that provides the coverage you need for a particular period of time. Term life insurance policies usually protect the policyholder in 10, 20, or 30-year terms. If you perish while the life insurance is still active, your loved ones or beneficiaries will receive a death benefit. However, as soon as your term is up, you lose coverage – if you want continued protection, you’ll have to convert it to a permanent life insurance option or re-apply for a plan.
Term policies provide coverage and security in exchange for relatively low monthly payments or premiums. This low cost is a major reason why term life insurance is considered the “bread and butter” policy by many insurance companies.
All premium payments are set based on your physical condition, age, and general life expectancy. Life insurance companies may require medical exams to validate your information and screen for any potential red flags.
Medical exams are often required as part of the application process. If your policy expires, you may have to take a new medical exam to extend your coverage. This means you’ll likely be reevaluated for a new premium rate based on your age and health status.
How Long Should Your Term Life Insurance Last?
Unlike other types of life insurance, term life plans expire. This can be both an advantage and disadvantage, depending on the coverage you need from your insurance policy.
Given this, one of the most important decisions you’ll make is how many years you’ll need life insurance protection. Here are the six primary considerations you should make when planning for your term policy.
Your Age And Health
You’ll want to consider your age and health before all else when planning for term length. That’s because your age and general physical condition will determine how long your life insurance plan should last.
For example, if you’re in your late twenties and in excellent health, you may want to get life insurance that lasts 30 years or longer. Conversely, older users with some healthcare concerns may want to settle on a policy with a shorter term.
Loans And Mortgages
Your existing financial obligations should be your primary consideration when you buy life insurance. This includes student loans, mortgage payments, credit card bills, car loans, or other outstanding debts.
Your debts should factor into your ideal term life insurance length and the coverage amount. The insurance you get should be enough to pay off your financial obligations if you pass away unexpectedly.
For example, say you have a mortgage worth $250,000, and you expect to pay it off within the next 20 years. In that case, you’d need a term life insurance policy with at least a 20-year term. This ensures that your family will be able to pay off your mortgage in case you die.
The main benefit of term life policies is the peace of mind they bring! If you’re properly insured, your family and children won’t have to worry about money even after you pass away. However, you have to make sure that your term life policy has enough to replace your income for several years.
If you’re the sole source of income for your loved ones, you need to multiply your annual income by the number of years you want coverage for. So, if you make about $60,000 a year and want to financially secure your family for 5 years, then you’ll need coverage of at least $300,000. Taking inflation into account, you’ll likely need even more.
Remaining Working Years
Another important consideration is your remaining working years before you’re likely to retire. For example, if you’re at the height of your career and are unlikely to retire within the next 30 years, then a policy with a 30-year term may not be enough.
Child And Family Life Insurance Needs
There are two primary ways to determine your ideal term length. Namely, your loved one’s needs and how long they’ll need the support.
For example, newlywed couples may want to consider a long-lasting life insurance option. This is especially true if they have plans to share debts or have children. In this case, they’d want life insurance coverage that is long enough to last until their debts are paid off, and their children are financially independent.
However, even people with older offspring need to consider their age and needs when deciding on their term length. Would 30 years be long enough to provide security while you are still paying for your child’s expenses, including higher education and student loans?
Special Needs Children
If you have a child with special needs or complicated health issues, a longer 30-year term policy can help make sure that they’ll have the care they need even if they die. This is especially true if your child will need funds to pay for lifetime care.
Insuring A Loved One
Buying term life insurance for your loved ones can protect you from significant financial burdens. However, the application process may be a little more complicated than usual. The same is true when determining the policy’s ideal term length.
You’ll have to demonstrate “insurable interest”, which refers to the possible financial loss for you if the insured person were to die. This usually involves submitting supporting documents and providing relevant information.
Additionally, the plan should last as long as your financial obligations with this person. Because of this, insurers may require information on the insured person’s financial contribution to your business, mortgage, or household to give you the right amount of coverage.
Common Scenarios And Ideal Term Length
An excellent choice for policy owners with few obligations left. This also includes Parents with kids in middle or high school and Individuals looking to retire within the decade.
Applies to potential policy owners that need coverage to last long enough to secure their child or mortgage. This also includes Policy owners with cosigned loans and Those retiring within 20 years.
Includes people at the “start” of long-term commitments. This includes Newlyweds, New homeowners, Parents with a young or special needs child, Risk-averse people, & Users in their twenties.
Frequently Asked Questions
How much coverage should I get?
While most experts recommend starting with five to ten times your annual salary, you may need more depending on your other financial obligations. For example, if you’ve picked a 30-year plan to match your mortgage, you’ll need as much coverage as five times your salary plus the value of your mortgage.
What can my insurance pay for?
Your insurance plan’s lump-sum payout can be used to cover your end-of-life/funeral expenses, rent, home loans, day-to-day expenses, outstanding debts, medical/legal bills, and childcare expenses. Some families may also choose to invest the money in other plans.
How does term length affect cost?
When dealing with term life insurance, in particular, extended life coverage usually results in higher life insurance rates. Longer terms mean that there’s a higher likelihood that your life insurance company will have to pay out the policy. Higher premiums can help offset the potential costs, which is why term life insurance rates for a 30-year term are higher than a 20-year term.
A longer-term length makes financial sense if you can afford it, especially if you have plans to renew your policy in the future. Premiums are calculated based on your medical exam results, so locking in rates when you’re young and healthy can help you save a lot in the long run. A policy that gives you coverage for 20 years will be cheaper than buying two 10-year policies one after the other.
Should I convert my term life insurance to a whole life plan?
If your policy’s expiration date is coming up and you still need coverage, it may be possible to convert your policy into something more permanent. Note that not every plan is convertible, so you’ll want to check in with your insurance company before exploring this alternative. With this in mind, we recommend only converting your plan if you can afford the costs of conversion.
Buying the right amount of insurance can be complicated, but the coverage and security it offers are factors that are too important to overlook. If you’re struggling with finding the perfect coverage length, contact Wesley Insurance, LLC to find out how we can help you!