How to Determine the Right Length of Term Life Insurance
Outside of how much term life insurance to purchase, the other key concern is how long or what term the insurance should be purchased for. These two factors really determine cost so let's take a look at the question of "how long?"
Term life terms usually come in fixed periods of time running 5, 10, 15, 20, 25, or 30 years depending on carrier. One of the reasons that term life insurance is so much less expensive than whole life insurance is that the carrier is only at risk for a period of time. Whole life insurance can continue...well..for a person's whole life. The analogy of renting life insurance (term) versus owning (whole) is usually thrown out (most likely by someone selling whole life insurance!). Life insurance is quite different from home ownership (the basis for the analogy). One is an asset while the other is protection from risk. Whole life insurance can be 10 times the cost of term.
The key to term life insurance is that you use it to protect against a defined risk or to mitigate a defined financial responsibility. The most common goal is to provide for loved ones in case of the loss of an income provider be it the sole or partial provider. This is a common concern for families at all stages from newlyweds to older adults whose children have already left the house. Typically, people underestimate the financial strain a loss puts on the their families. If you were to imagine not only the stress of the loss but the financial impact of everything falling on the other family member(s), it becomes apparent pretty quickly how important sufficient term life insurance protection can be.
Let's look at some typical term considerations.
Newlyweds/families with young children.
The cost of raising children is estimated at a quarter of a million dollars from birth to college these days and that will only increase with time. Clearly, the concern for newlyweds or families with young children is to provide financial protection out to where the children are adults and ideally through college (another ever escalating expense). This would argue for a longer term period between 20-30 years. Keep in mind that for a given budget, the longer the term, the less coverage can be purchased for the same life insurance premium amount. There's a trade off and it's best to use the instant quote engine to run multiple combinations of term and term life amount to find the right "mix" for your budget.
Established family with/without older children.
As mentioned above, college becomes a key concern for this group. College is estimated at $20K-$40K and that amount will grow significantly into the foreseeable future. Paying off existing debt and/or assets also becomes a competing consideration. Mortgages, business debts, credit cards, and loans should be equally considered along with income replacement to get past the college years successfully.
Older adults
For adults who no longer have the intense financial responsibility of children, the shift is towards providing for debt/asset payoff and income replacement over a shorter period of time. Term is ideal here as well due to the significant price savings versus whole life for equivalent amounts of coverage. Age is the primary factor in determining cost so buiying term life insurance at an older age can be expensive. Whole life almost becomes out of the question for any amount of significant coverage as it's typically 10 times more expensive than term life insurance.
The best approach is to try multiple term limits when you run your instant term life insurance quote on our free engine to find the right "mix" for you.
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