If you’re buying a term life insurance policy, you may be wondering how long of a "Term" (Duration of Coverage) you need.
It’s one of the most important questions to consider when you purchase a term life plan.
The fact is, you are buying life insurance to provide financial security and protection for your loved ones, and choosing the right policy duration (Term) will make sure they have the protection when they need it.
How to Choose Your Policy Term
It’s actually very simple. Answer the following questions:
Then, look at the longest duration needed to accomplish your longest financial goal for the future, related to your life insurance policy.
Example of Goals for Life Insurance to Protect:
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NOTE: Make sure you choose the policy "Term" that matches the longest period of time you have a financial obligation.
How Long Does Term Life Insurance Last?
Term life is temporary life insurance lasting for a period of up to 30 years.
You may be able to select a duration of coverage for a period of:
The longest duration available for term insurance is usually 30 years.
So, the maximum duration available would be thirty years of life insurance protection if buying a term policy.
Choosing a Policy Term
When you’re buying term insurance coverage, you have two main decisions:
The duration of the financial obligations you want to cover will help you determine how long your term life policy should last.
You want your policy to continue until your last major financial obligation is taken care of.
Term life policies are generally sold with term options of 5, 10, 15, 20, 25 or 30 years.
You won’t find, for example, a seven-year life insurance policy.
The longer the length of the term policy, the higher your cost of life insurance, because you’re locking in your rate for a longer period of time, and, as you age, health problems tend to crop up and your likelihood of dying increases.
If your longest-lasting financial obligation falls in between available term periods, round up to the longer duration (term).
For example, if your mortgage will be paid off in 17 years, round up your term life coverage to last for a period of 20 years.
Annual Renewable Term Insurance
Another option available for people seeking temporary life insurance protection is Annual Renewable Term life insurance, which guarantees your ability to buy coverage for a set period of time; however, the policy renews each year at a higher premium.
So, you keep paying more each year for the entire time you need your life insurance to last.
Level Term Life Insurance
You’ll pay less by purchasing a standard Level Term life insurance plan.
Annual renewal term insurance can be a good choice for people who have short-term financial obligations of 4 years or less, or who want to cover a short period until they get a new job with group life coverage.
Keep in mind, if you need coverage lasting for less than 5 years, you can buy a 5-year level term life policy, and cancel the coverage after 4 years, or when you no longer need coverage, for example.
How Level Term Life Insurance Works
Level Term life insurance provides you with temporary life insurance for a specific number of years. You can choose coverage for a "Term" of 10, 15, 20, 25 or 30 years.
Term life builds no cash value inside the policy, it is not an investment, it is "Pure Protection". That’s why it usually costs 5-10 times less than permanent life insurance.
Term life is the lowest cost type of life insurance.
Term life insurance lasts for a set period of time up to 30 years.
You pay the same premium each year for the entire duration of your policy term.
Term life policies pay the beneficiary the face amount of the term life policy if the insured person dies during the term of the policy.
For example, a 20-year term life policy with a face amount of $300,000 would pay $300,000 to your beneficiary if you die any time during those 20 years.
If you're alive at the end of the policy term, the coverage ends.
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Duration of Mortgage Loan
Your mortgage is a big part of your monthly living expenses and often the main reason people choose to purchase a life insurance policy.
If you want your life insurance to cover your mortgage loan, consider how many years you have left until your house is paid off. You don’t want your insurance policy to expire after 15 years, if your mortgage payments will last another 5 or 15 years.
How Long Until Children are Grown Up
The cost to raise your Children can be very expensive, considering food, clothing, camps, music lessons, healthcare, education, gifts, phones, vacations, education, computers, and so much more.
How long until you can expect your kids to be able to support themselves?
These days, that’s probably at least a few years beyond age 18, especially if you’re planning to pay for their college education.
How Long Until Retirement
Hopefully, you’ve been saving for the day when you will no longer need to work.
If you’re buying term life insurance primarily for income replacement for your family, you may not need coverage once you have retired.
Once your kids are all grown up, the house is paid off, and you’re living off your retirement savings, life insurance is one more thing you no longer need to worry about – since you probably don’t have the financial obligations you once paid on a monthly basis.
Choosing the Duration of Your Term Life Plan
Your policy’s "Term Length" is the policy’s duration – How long you have your life insurance protection "In Force".
Most term policies last for a period of 10, 20 or 30 years, but many insurers offer additional 5 or 10 year increments, some up to more than 30 years, depending on the insurer, your age and health, as well as, your budget.
You want a term length that covers the entirety of your financial obligations or outstanding debts.
If you have a 15-year mortgage loan on your home, then you’ll want a 15-year level term life policy so your mortgage payments are protected, as long as you keep paying the premiums on your life insurance.
Likewise, a 25-year term life policy will cover you for 25 years. If you die during that time, your beneficiaries will receive the death benefit proceeds from your insurance policy.
But if you die after your term length is over and you didn’t get additional coverage or convert your term policy into a permanent policy, your beneficiaries won’t receive any death benefits, because your life insurance will have expired.
Bottom Line: To ensure your loved ones don’t become liable for your financial obligations, choose a term length that covers your longest financial obligation.
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