OK, so we gave you the skinny on term vs. whole and then we talked estimating how much life insurance you need. Now, assuming you've settled on term life (which most people do), there's one more major life insurance decision ahead. Here's a crib sheet to figuring our how long your life insurance term should last.
- Pinpoint your biggest financial burden. That's usually a mortgage, but other prime candidates include co-signed student loans, business loans or child care.
- Determine how long you're on the hook for that obligation. You're buying life insurance so your family doesn't struggle financially if you die. As such, an ideal policy lasts as long as those bills do. (So, if you're ten years into a 30-year mortgage, a 20-year term is appropriate.)
- Consider kids. We're talking current and future offspring that'll serve as beneficiaries. Generally speaking, the younger they are, the longer the term.
- Count down to retirement. At that point, your kids (ideally) can fend for themselves and you (again, ideally) can live off Social Security and your savings — no income replacement necessary.
- Think in 5-year increments because that's pretty much how term life gets sold. Policies most commonly include 10, 20 or 30-year terms.
- Pull quotes once you've settled upon an ideal length and amount of coverage. (We can help you compare life insurance quotes from the major insurers here.)
- Make sure premiums are within your budget. The longer the term, the higher the price tag. And a 30-year policy isn't ideal if you can't actually afford it. If prices across carriers are too high ...
- Consider tweaking the term. You could also buy a short term policy now and a longer-term policy later when money isn't as tight, but there's risk with that strategy, given the older (and unhealthier) you are, the higher your premiums.
- Know your extension options. Most policies come with a term conversion rider that lets you convert an expiring term life policy into a permanent one without taking another medical exam. This rider isn't always the most cost-efficient way to extend coverage — whole life, remember, is more expensive. Still, it's important to know what your policy allows.
- Settle on a policy then gear up for your medical exam, which, we promise, isn't as scary as it sounds. Here's a quick overview on getting through it.