How does term life insurance work?
Term life insurance is a good bet at any phase in your life. It’s an easy way to protect your family, whether as an avenue for loved ones to replace your lost income or as a way to make sure your final expenses and other debts are taken care of after you die. Term life insurance is a type of insurance where you pick the length of your coverage (called your term) to suit your needs. Once you’re accepted, your premiums are locked in for the length of that term.
Policy options typically include 10-year, 15-year, 20-year, 25-year and 30-year plans but knowing what coverage is best for your family can be confusing. A young family with children might choose a longer term with more coverage so they leave behind money to put toward the mortgage, college tuition or other debts. An elderly family with adult children and no mortgage might choose a shorter 10- or 15-year term with enough coverage to help pay final expenses and debt at the end of life. Let’s dig more into how to choose the right term life insurance length for you.
How to Choose the Right Term Life Insurance Length
Picking the right term life insurance length depends on what is best for your family—but how do you know what to consider during the decision process? The main factors you should think about are:
Your age and/or years until you retire
The age of your children or dependents
The length of your outstanding debts
You want to make sure your beneficiaries will be taken care of and able to pay the bills if your income were suddenly gone. If you’re providing for your family, a term that lasts until your retirement would be a good option. A family with children should consider a term that will see them through college or an age of financial independence.
When it comes to mortgages and debts, your term should last as long as you’ll be paying the debt (for example, if you have 20 years left on a mortgage, a 20-year term would keep your family protected).
Why You Should Consider a Longer Term Length
Families with long financial obligations should consider a longer-term life insurance policy. Mortgages and children are a great reason to invest in a 20-year term, 25-year term or 30-year term life insurance policy. A longer term ensures that if you die unexpectedly, your children will have the money they need for college even if you can’t be around to help.
The 20-year term is the most common length families purchase. The typical term policy has an option to convert the policy to a permanent life insurance policy if that fits the family’s needs better by the end of the term. A long term is also ideal for a family with a special needs child who will rely on the parent’s income for most or all of their life.
Here are some examples of when a life insurance policy with a longer term makes sense:
A 20-year term life insurance policy is a good investment for single-income families. In case of an unexpected death, money is one thing the family won’t need to worry about.
A 25-year term life insurance policy makes sense for families with young children. This provides financial protection through the college years and into adulthood for your children if you were to pass away.
A 30-year term life insurance policy might be necessary if you have long loan repayment periods, such as a 30-year mortgage. This term gives your family coverage throughout the life of the loan.
Why a Shorter Term Length May Make Sense
You want to make sure you purchase enough coverage to get your family through financial obligations without purchasing too much coverage. For example, if you only have 10 years left on your debts, a 30-year term policy likely won’t make sense for you. Another example: if your children are currently in their teens, a 20-year policy might not be necessary.
This is when shorter-term life insurance might make sense. These policies can be helpful when paying off short-term debts or for final expenses. Shorter policies offer more flexibility and a 10-year term or 15-year term life insurance policy might fit the needs of a broader range of people.
Those without dependents or debts who are looking for coverage might be interested in a 10-year term because it provides enough coverage for their beneficiary if something were to happen without having too much coverage. The 10-year term is the most popular length of the shorter terms because it allows the insured to be reassessed at the end of the term, which can be great for someone who is trying to quit smoking or lose weight.
Examples of when a shorter-term life insurance policy might make sense include:
A 10-year policy might be right for someone who is close to retirement and needs coverage to get them through that last portion of employment.
A 15-year term life insurance policy might make sense for parents with children in their teens. This will provide protection through college and the early stages of financial independence when they might still rely on parental income for help.
Let SelectQuote Help You Find the Right Term Life Insurance Length
SelectQuote understands choosing the right life insurance term can be confusing and overwhelming, so we aim to make the shopping process as streamlined and transparent as possible. Our experienced licensed life insurance agents take time to get to know you and your unique situation before searching our database of highly-rated carriers for a policy that’s right for you—all in just minutes. The end result? A life insurance policy that works for you and your budget, found quickly and efficiently to save you time and money.
