There is little doubt that term life insurance is a popular choice for millions of people who want coverage for their families in case something should happen to them. While term life has many advantages and is rather straightforward in its coverage, one of the issues that many people face is deciding just how long the coverage should be to meet their needs.
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Choosing the Length of Term Life Insurance:
There are many factors to consider when it comes to choosing the right length for a term life policy. While there are many different lengths in terms of time available for the policy to be in effect, the three most common are the 10 year, 20 year and 30 year term life policies. Therefore, a simple way to start is by considering all three of these time lengths when looking over your needs.
You will need to look over your current financial status and project that into the future so that you can anticipate the needs of your family in case you are no longer present.
For example, if you currently have a spouse and two children under the age of five and have just purchased a home with a 30 year mortgage, then you should take into account expenses that are 10, 20 and 30 years into the future to decide which one works best for your needs.
Earnings or Salary: Your salary is your primary financial means of support for the family. Calculating the loss of your salary from the family earnings will take a little time as you will need to take into account the following;
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- Other Salaries or Earnings from the Family
- Outstanding Debts such as Mortgage or Auto Loan Payments
- Expenses such as Utilities, Food, and other Needs
- Potential Future Expenses
While you do not have to calculate all of financial needs of your family, you will want to provide enough in the insurance so that they can be covered during this difficult time until they can adjust and get back on their feet.
Six months to a year is a calculation that is often used when determining how much a family needs when trying to cover their expenses.
Children: They may seem small at first, but children grow up to be adults pretty quickly and covering their needs can be expensive over time. This is especially true if you are sending them to college. So, if you have children whom you want to cover for college expenses for your insurance policy, then you will want to project forward long enough so that they will have their education covered.
Debts: There are a number of debts that fall into this category starting with your mortgage, auto loan and any potential credit card or personal loan payments that needs to be made. However, mortgages and auto loans have definite time frames that will allow you to properly plan how long your term life insurance should be.
Age: Your age will play a big role in determining the how long your insurance coverage should be. Generally speaking, the younger you are, the less expensive the coverage will be as you are statistically less likely to pass away from various causes at 30 than you are 60. In addition, your age will help you determine the amount of coverage needed as you face various challenges in your lifetime.
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Funeral Expenses: Today, the average funeral costs are roughly $9,000, an increase of about one-third over the past decade alone. While it can be difficult to project such rises in burial costs over a long period of time, you will want to take them into account so your family will not be burdened with them as they grieve.
Which One to Choose – 10, 20 or 30 Years?
From examining the information you currently have, determining the amount of the coverage should be fairly straightforward. However, how long your coverage should last will be tied into that amount as well.
10 Year Term Life Insurance: For the most part, a 10 year term life policy is a very short one that is generally designed to cover your family over a specific period or event such as sending your child to college or more likely covering retirement for your spouse in case something happens to you. This type of policy can bridge the gap between longer policies so that your family is fully protected during the different stages of their lives.
While the advantages of covering a specific period of your life with this insurance is well suited, the downside is that this is often not long enough in many cases which forces a family to purchase new insurance sooner than they originally intended. Those who are over 90 years old, a 10 year term plan is the right fit.
20 Year Term Life Insurance: A 20 year term life policy definitely splits the difference between the 10 and 30 year in more ways than one. A policy of this length tends to work very well for young families and those whose children have already left college and are on their own.
The advantage of this policy is that it is well suited for those who need more than 10 years, but substantially less than 30. However, that’s also the biggest disadvantage is that 20 years is for many families just not the right length at all. If you are just over 70 years and looking for an affordable term coverage, then a 20-year policy could be the game changer.
30 Year Term Life Insurance: This one is a very popular choice with many families as it often provides coverage for a long-term mortgage which can be most beneficial. Basically, having the mortgage paid off early provides considerable financial relief for your family during this time in their lives which is why a 30 year term life policy is so popular.
One big advantage of covering your mortgage with a 30 year term life policy is that as the payments are made on the loan, your policy benefits remain the same which leaves more for your family’s other needs. However, a disadvantage is that if your family undergoes a big financial change this type of insurance may seem unsuitable.
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There are many factors to take into account when choosing the right length for your term life insurance policy. However, a little research and calculation will help you make the best informed choice.