Choosing a Term Life Insurance Plan
When buying a term life insurance plan, the amount of coverage and the length of the term are the most important decisions you will make. There are several factors that determine which term length is right for you, including premium costs and your particular family and financial situation.
Choosing a Term for Your Term Life Insurance Plan
Your term life insurance plan will pay a death benefit only during the term of coverage. This means if you buy a five-year term life insurance plan, your beneficiaries will only receive payment if you pass away within five years. If you buy a thirty-year term life insurance plan, on the other hand, then your beneficiaries will receive coverage if you die at any time within the thirty-year period.
Factors in Choosing a Term for Your Term Life Insurance Plan
Most people purchase insurance in order to make sure their families or dependents can contain to maintain the same standard of living, should something happen to the policyholder. Therefore, when choosing the appropriate term, you want to consider how long you feel you need to provide that protection to your family.
If your children are younger, you may wish to purchase a longer term life insurance plan so they can be protected at least until they graduate from college. This means if you have a five year old, you should anticipate needing term life insurance until your child is approximately 21 years of age. This suggests that a term of at least 17 years is right for you. If you don’t have children yet but you plan to, or if you want to take care of your spouse into retirement, a 30 year term may be right for you.
Premiums and Term Length
The longer the term length you select for your term life insurance plan, the greater the statistical likelihood that you will die during that term. Therefore, as you make your term longer, premiums go up. Since life insurance becomes exponentially more expensive once you turn sixty, if you extend the term to go into your sixties, your premiums may become much higher.
While you want to protect your family, you should take this into consideration when making your decision. If the difference in premiums is significant enough, it may be more advisable to buy a shorter-term life insurance plan and to invest the difference. That money can grow in your investment account and can provide a financial cushion for your family to fall back on should something happen to you. If you amass a large enough amount in savings, your family will be able to be self insured as your investments will allow them to continue to live at their standard of living, even if something should happen to you.
Choosing a Term Length
These considerations together determine how long of a term you should select for your term life insurance plan. You want to determine both how long you believe your family will need protection, and how long you believe it will take you to become self-insured. With these two considerations in mind, you can select the appropriate term life insurance plan for your financial situation.