Once you’ve decided that a term policy is right for you choosing the term length may at first seem like an afterthought. All term life insurance policies have two financial factors that define the policy. The amount of insurance, or the face amount, is one. The other is the term. The term is simply the period of time the policy is guaranteed to offer level premiums to the owner. Terms come in variables of five and commonly will span from 10 to 30 years. Essentially the insurance company is betting on the likelihood of your passing so a shorter term brings less risk and therefore costs less where a longer one . . . you got it. OK, now that we’ve got that out of the way let’s talk about how long YOUR term should be.
What’s the Purpose?
Without a doubt the number one thing that will determine what your ideal term is by looking at what the purpose of your policy is. That purpose has an expiration date; hence the term. How long is the need for life insurance going to last? There are numerous reasons you could be shopping for insurance but chances are it’s one or more of these:
If you’re concerned with ensuring the mortgage gets paid off in the event of an untimely death just check how many years are left on the note on your house.
If there are people in your life depending on your income to live you’ll likely want to consider the number of years until retirement. The idea behind this is that as long as you are on pace to have sufficient retirement savings you won’t need life insurance coverage when you’re no longer working.
If you have kids you already know they’re expensive. You’ll want to make sure there’s sufficient funds available to pay for them until they’re old enough to support themselves. Some people set the term to when the youngest child is 18 and others until the youngest is 22.
It’s Not Set In Stone When You Apply
Even after considering all of these things if you’re still unsure on how long the term should be don’t let that prevent you from applying for the insurance in the first place. Until the policy is approved by the insurance carrier and you’ve signed the final copy the term can be adjusted. If you like the price of the 10 year but you feel you’ll have a need for the next 30 years go ahead and get the ball rolling. You can request your agent to add term years to the policy or reduce them upon delivery.
Also consider that if the term you really want simply isn’t in your price range you can always opt for the shorter term and reapply for a longer term at a later date when you can.