How Long Should Your Life Insurance Term Be?


Photo: SalFalko

If you’re shopping for term life insurance, two important considerations are how much coverage you need and how long your term should be. While many people folks on the amount of coverage, the length of the policy is an incredibly important factor. After all, the term part is the reason you’re getting term rather than permanent life insurance. Since it doesn’t last forever (and doesn’t act as a savings vehicle), the premiums are cheaper.

Eighteen years ago my wife and I purchased 20-year term policies when we adopted are children. The logic was that we wouldn’t need insurance once the kids were grown. At the time, 20 years seemed like forever. My how time flies.

The point is that determining how long of a term to sign up for can be just as difficult as determining how much coverage you need. So here are some questions to ask when deciding how long your term life insurance coverage should last:

When will you be (at least mostly) debt free?

The real point of life insurance is to help your loved ones cover bills and maintain their standard of living in the event of your death. If you’re good at managing your money, your mortgage is most likely going to be your largest debt. So one approach is to let your mortgage determine how long you’ll need life insurance. If you recently took out a 30-year mortgage, consider buying 25 years’ worth of life insurance, at least. If you’re midway through paying off your 15-year mortgage, you may cut down on your insurance term.

How old are your kids?

One primary reason that people buy life insurance is to provide for their children if the worst occurs. Typically, you’ll want to have life insurance to provide for your children through their college years. As noted above, that was our thinking when we bought our life insurance.

So if you just had your first child and expect to have more, you may want to opt for 25-30 years’ worth of term insurance. But if your children are all high-school aged, you shouldn’t need life insurance for many more years.

When will you have enough in savings to self-insure?

Another reason that many people purchase life insurance is to cover potential end-of-life care and funeral expenses. According to the National Funeral Directors Association, the average funeral costs about $6,500. And disability and care can cost well into the tens of thousands of dollars.

Eventually, you should have at least enough money in savings to cover your funeral expenses so that those expenses don’t fall to your loved ones. As long as you’ll have enough money in savings to cover these expenses, you won’t need term life insurance coverage any more.

Many of us will never have enough to completely cover potential long-term care or disability. But you may decide to check out long-term disability or long-term care insurance, which can cover those expenses without costing as much as a large term life insurance policy.

How much can you afford to pay for life insurance?

Perhaps the most important thing to consider when choosing term life insurance – or any type of life insurance – is what you can afford. If you stop making payments, for whatever reason, your coverage will lapse. So you need to make sure you can pay the monthly or annual premium, even if money gets tight in the future.

If you know you can’t afford the amount of coverage you need for a 30-year term, consider cutting back to a shorter term. This is an especially viable option if you’re still very young.

Let’s say you have your first child at 25, and you would like to have 25 years of life insurance coverage. (Based on your personal assumption that you’ll have another baby or two in the next few years.) Right now, you can’t afford a 25-year term policy, but you can afford a 10-year policy. Because you’ll still be relatively young at the end of the 10-year policy, you’ll most likely be able to renew your coverage for another 15 years, if necessary.

But be cautious. If you have a major health problem, start smoking or put on weight between now and the end of your shorter life insurance term, your premiums could skyrocket on your next policy. Or worse, you could be unable to get another life insurance term.

A wiser option could be buying the bare minimum of life insurance coverage for 25 years, then tacking on a second policy to increase your coverage when you have more wiggle room in your budget.

Do you need permanent life insurance?

In general, we here at DoughRoller believe term life insurance is best in most cases. It’s the most affordable option and usually the wisest choice. However, there are some instances in which you may need permanent or whole life insurance.

If you’ll never have enough in savings to retire or to cover your debts and funeral expenses, permanent life insurance could be a reasonable option. Also, if you’re providing for a child or another dependent who will never be able to live independently, permanent life insurance may be justified.

Take Action

When choosing a term for your life insurance policy, there’s a lot to consider. With term insurance, don’t underestimate the importance of the length of the policy. Use the above questions to assess what’s best for you and your family. And to get quotes quickly and easily online, visit our life insurance page.

Finally, if you have any questions or think other factors are important that are not listed above, leave a comment below.

Published or Updated: April 4, 2013
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.

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