When purchasing life insurance, there are several key decisions that an applicant will need to make. For example, first it is important to know how much coverage to obtain. This is because an insured does not want to leave his or her survivors without enough money to get by.
When purchasing term life insurance, there is also another big decision that also needs to be made – how long should the coverage last? This is because, unlike permanent life insurance that lasts for an indefinite period (provided that the premiums are paid), term life insurance will only last for a certain set time frame before the policy expires. This is why term life insurance is often referred to as being “temporary” coverage.
Therefore, it is important that those who are going to purchase term life insurance choose the appropriate length of coverage for their specific needs. The good news is that there are some ways to help you in determining this.
How Long Should Your Term Life Insurance Coverage Last?
Depending on your current age and health condition, term life insurance policies can be available in lengths of between 1 year to more than 30 years – and many different time lengths in between. So, there are a lot of variations in terms of policy length that you can choose from.
Because life insurance is not a one-size-fits-all solution, it is important to choose the length that works the best for you and the specific need that you are trying to cover. For example, in some cases, an individual may want to ensure that their home mortgage will be paid off if he or she passes away while there is still a balance. If this is the case when they first obtain a 30-year mortgage, then a 30-year term life insurance policy would most likely be the best option for them.
If someone is currently a smoker but intends on quitting. Maybe they choose a cheap ten year life insurance for smokers policy to get the lower premiums and then quit the habit and stay off cigarettes for two years. Then they can get a non-smokers rate and get a longer term for the same amount or less.
Finally, if a grandparent was hoping to cover his 13-year old grandson’s college fund, then he may only need to purchase a 5-year term policy, as his grandson would be starting college in the next five years.
How Much Term Life Insurance is enough?
Just as the length of coverage does, how much term life insurance to buy will typically also differ from person to person? However, in determining how much life insurance is enough, there are a couple of ways to calculate an appropriate death benefit.
One way to calculate how much you need is to base the amount on an insured’s current age, along with a multiplier of current income. As an example:
20 – 30
20 x gross income
31 – 40
16 x gross income
41 – 50
12 x gross income
51 – 60
8 x gross income
61 and over
5 x gross income
An alternate way to calculate how much term life insurance is needed is to perform a needs analysis. The following questions should be answered to come up with an appropriate amount of life insurance coverage:
- How much income would be needed by the insured’s spouse and children in the event of the insured’s death?
- How many total years will this income need to be provided?
- What is the insured’s current annual gross income amount?
- What is the amount of the insured’s spouse’s gross annual income (if applicable)?
- What is the estimated amount of final expenses?
- Is there currently any other life insurance in force, and if so, how much?
Other Important Factors to Consider
There are other factors to consider, too, when thinking about a term life insurance policy purchase. Certainly, in many instances, those who are young and in relatively good health can use term life to purchase a large amount of coverage for a fairly small amount of premium.
However, there are other criteria that will also come into play when considering the overall life insurance policy purchase picture. Some of these will include the following:
- Your other financial obligations. Your other financial commitments will also have a say in what type of life insurance you purchase – as well as how much, in some instances. For example, most people want to make sure that their life insurance is in effect for at least as long as their “big ticket” commitments such as their mortgage, college expenses, and other large financial expenses that could cause hardship if the insured were to pass away.
- What you can afford. What you can afford is also a consideration. In this case, the longer a term policy’s length is, the more expensive its premium will usually be. With this in mind, one option that some people use is to purchase a policy with a shorter length (and a correspondingly lower premium) in hopes that when that policy expires, they will have a higher income (and still be in good health), so that they can qualify for a longer policy in the future.
It is also important to determine whether or not term life insurance is even the best option for you. For instance, when we help a diabetic get life insurance, a permanent life insurance policy may be the better way to go. With these types of policies, in addition to the death benefit, you also have the cash value build up. Funds are allowed to grow on a tax deferred basis – and the money can increase substantially over time. It can be withdrawn or borrowed for whatever the policyholder wants, or it can remain in the policy indefinitely.
The other benefit of a permanent life insurance policy is that the policy doesn’t have a time limit on it – so, provided that you continue to make the premium payments, the plan won’t ever expire. Also, in most instances, the amount of the premium is locked in for the life of the policy.
Where to Find the Very Best Rates on Term or Permanent Life Insurance
When shopping for term or permanent life insurance coverage, your first thought should be how you will compare the many rates available.
Our company has contracts with more than ten life insurance carriers! This gives you an advantage because we can work to get you a lower rate than you would normally get if you went to a agency who only works for one life insurance company. Not only can we give you this information quickly, but you don’t even have to travel outside your home to get it! To get started just fill out the quote form on the left of this page.
If you would rather start with a phone call, you can dial 888-229-7522 and reach one of our agents directly.