10, 20, 30 Years? More?
All of us have seen advertisements for level term life insurance. It usually shows a young family and says something like “this 35 year old father could have $500,000 of term life insurance for less than a dollar a day”. No one is fast enough to read the fine print, but if you pause it you’ll discover that it’s the price of a 10 year term life policy, a completely inappropriate recommendation for the a young husband and father. Great price. Wrong product.
What Is Guaranteed Level Term Life Insurance?
Term insurance has a guaranteed level (tax free) death benefit and a guaranteed level premium (cost) for a guaranteed level period of time (the term). Traditionally the terms offered were 10, 15, 20 and 30 years. In the last 5 years a few companies have added 25, 35 and very recently 40 year guaranteed level term life insurance options. It’s become much easier to match your family or business need with a term length that is appropriate.
How to Figure The Length Of Your Life Insurance Need!
The reason a 10 year term for the father above is inappropriate is that those young children will still be dependent on their parents 10 years down the road. The logic that the parents could buy another 10 year term when the first one runs past its’ guaranteed level premium sounds plausible except that 1. A 20 or 25 year term is less expensive over the period of the need than buying back to back 10 year policies and 2. There is no guarantee that your health will remain the same which could make that next 10 year policy more expensive than you planned. A severe health change could even make it impossible to get that next policy.
So, let’s look at some life insurance needs and the appropriate ways to tackle them. If you have young children then a 20 or 25 year term should get them to the point where they aren’t dependent on you. If you think more children might be in your future then maybe 30 years is a better choice. If you want a term life policy to protect your spouse from the loss of your income, the match that term with point where you believe you will be retired or have assets that the spouse can rely on. That might be 20 years if you’re older, 30 to 40 years if you’re younger. Term insurance is the cheapest way to buy life insurance protection. Remember that you can always cancel a policy if you don’t need it anymore, but you may not always be able to buy more.
Hinerman Group has 20 years of experience helping families and businesses make the right insurance choices, whether that’s guaranteed level term life insurance or another policy. Call us.