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How Long Should I Get Life Insurance For?
You’re filling out a form for a life insurance quote and you’re asked for how long you would like coverage? You thought enough about life insurance to reach this point but maybe didn’t consider the answer to this key question. Read through the information below to better understand life insurance term options.
Q&A: Life Insurance Policy Length
Deciding on a policy length can be tricky. Buy too long of a plan and you may end up paying for coverage you no longer need. But buy too short of a policy and you may end up without any coverage when you actually need it.
The correct length of a life insurance policy is going to be different for everyone, as there are several things to consider in order to arrive at a proper number.
Answering the following questions can help you decide how long your life insurance policy should be.
1. How Close Are You to Retirement?
The purpose of life insurance is to serve as a replacement for your income in case you were to die. If you figure you are 30 years away from retiring, then you may want to consider getting a 30-year life insurance policy. That way, the full lifespan of your working career will be backed up by insurance for those that depend on your income.
If you anticipate retiring in 20 years, then a 30-year life insurance policy may not make sense because you won’t have any income to replace for the final 10 years of the policy, making it difficult to justify a decade’s worth of premiums while living off your retirement benefits.
When determining how long to buy life insurance for, it’s a good idea to match your policy length to the amount of time you expect to continue earning a living.
2. Do You Have a Mortgage?
Let’s say you own a home and are the primary income contributer of the household. Your spouse relies on your income in order to pay the mortgage each month. If you were to die without life insurance, your spouse would have a difficult time making the payments on their own and may end up losing the home.
The length of your life insurance policy should correspond to the amount of time you have remaining on your mortgage. If you still have 25 years left until your house is all paid off, you will want a life insurance policy that lasts at least as long.
3. How Old Are Your Kids?
If you have children, they will be financially dependent upon you until at least the age of 18. And these days, half of college graduates are still financially dependent on their parents two years after graduating.
If your youngest child is only four years old, you will want a life insurance policy that lasts at least 14 years. That way, your income will be protected until your youngest child reaches the age at which they may begin to achieve some financial independence. A life insurance policy that expires before that time can leave your children without the financial support they need should you pass away.
Why Not Get Permanent Coverage?
Of course, you always have the option of buying permanent coverage, a policy known as whole life insurance. But despite the longevity of these policies, there are many advantages to buying temporary (or “term”) life insurance.
The Bottom Line
Determine your answer for each of the three sections above related to retirement, mortgage and children. Of your three answers, choose the highest number. Now round up to the nearest five-year increment as term life insurance is typically sold as 5, 10, 15, 20, 25 or 30-year plans. This is how long you should get life insurance for.
For example, if you determined you have 23 years until you retire, 19 years until you pay off your mortgage and 13 years until your youngest child is no longer financially dependent upon you, then your highest number is 23. Now round that up to the nearest five-year increment and you will want to purchase a life insurance policy good for 25 years.
Licensed insurance agents can help you determine the length of your desired life insurance policy, answer any additional questions and provide online quotes from leading insurance companies.
Consumer Reports: http://www.consumerreports.org/cro/news/2013/02/the-wrong-life-insurance-can-waste-your-hard-earned-dollars/index.htm
*Applications for insurance may be subject to acceptance by insurer. Rates and coverage amounts will depend upon the carrier selected.