Term life insurance is affordable and has very few surprises. However, you need to decide the length of the term life cover you should purchase. But determining the term length is one of the hurdles that you will have to grapple with.
The rule of thumb is that choose a term that covers the entire period your family will be relying on you. It should coincide with the time your children will be in school.
Also, it should cover the time you will have limited assets. Besides, it needs to cover the period when you will be paying the co-shared debts or mortgage.
Typically, term life policies can be purchased in increments of 5, 10 to 30 years. Choosing the time when your family will need your support is vital.
So, which is the best length for a term life policy?
First, it is prudent that you choose a cover when you are still young and healthy. At this time, you will enjoy the best rates. Also, at this age, it is easier to buy longer-term life and helps you to save on money and time.
Choosing The Term Length
Let’s now focus on how you can choose the length of your term life insurance.
There are many options but consult an online calculator is the best. It will consider many factors such as your age, level of debts, income and family structure. The calculator will then recommend the best term length depending on the coverage amount you need.
How much you need the premiums you can afford and how much you qualify for are three critical aspects.
To determine the amount of coverage is simple. Look at aspects such as the loans that you may need to pay. Furthermore, look at how much you need to pay for children’s upbringing and the amount you qualify for.
Luckily the question of how much you can qualify for is a simple one and can be estimated easily. Typically, you will qualify for 10 to 12 times the amount of your current salary.
What is Term Length?
Let’s explain what a term length is.
It refers to the duration of the policy. As mentioned, it could be 30, 20 years or 10 years. Of course, there are a few companies that offer 5 years, 30 years and 4 years.
So in essence, a 20-year term policy will give you coverage for 20 years from the date you purchase the policy. But you need to ensure that you pay the premiums as agreed. So if you die within this period, your heirs will be entitled to benefits.
However, if die after the period, your beneficiaries will not receive the benefits. Obviously, extending the coverage is a good thing and will ensure that your family is fully protected.
How Do You Calculate the Coverage Length?
To determine the length of a cover that is ideal for you, you must consider the reason you are buying the policy. The goal should be to protect your family after you breathe your last.
Thus, it should cover the length of time you think your heirs will be depending on you.
The age of your last born kid could be useful in helping you to accurately calculate the coverage period. For instance, if you have a one-year-old child, a policy that covers a length of 25 years could be the best in this case.
If you buy a house that will need to be paid for in the next 30 years, choose a policy that will last for the next 35 years. It would be best for this situation. The five extra years are critical in case you decide to refinance the mortgage.
Why You Should Consider a Longer-Term Length
The premium rates are currently lower than they will be 20 years from now. Besides, as time passes by, you will start aging. Renewing a policy when you are older will attract new higher premiums.
Typically, the premiums will always be higher than what you are paying now. Also, changes in the insurance sector and inflation will force the premium rates to go up.
But, when you take a 40-year contract now you will pay almost the same premiums 40 years later. Today’s expensive rates will look cheaper and affordable as you draw closer to your 40-year mark.
The Mistake Most People Make
Most people think that they will be financially stable in the future. So they opt for a shorter term and plan to take a better one when they are stable. Unfortunately, some things may happen which may make your financial position worse.
For instance, you may have another kid or get involved in an accident. An accident will make it difficult for you to continue working. Furthermore, at some point, you may need to step in to take care of your parents.
Obviously, you may not afford to pay for higher premiums. So taking a long term contract at the moment is the best thing you can do. It is cheaper and saves you from the elevated rates when you renew the contract at an older age.
Why Are Longer-Term Policies Expensive?
Of course, when you choose to go for a longer-term life, you must be prepared to pay more. The thing is the longer the contract is the more the chances that the insurer will incur the risk.
For instance, taking a 30-year policy at the age of 60 means the insurer must prepare to pay the benefits. They will be lucky if you go past the 90-year mark.
Premiums paid on a 30-year policy will be higher than those that will be paid for a 20-year policy. The reasoning is simple; the premiums that will be paid in the last 10 years must be averaged into the rates.
But it should not be lost that buying a long term policy comes with a host of advantages including locked rates. For instance, if you develop some serious illness in the term, the rates will not increase.
But, if you bought a shorter term, it will make it necessary for you to go for additional coverage. If you are diagnosed with a chronic ailment you will be classed as uninsurable.
Lastly, when you go for long term coverage, it allows you to build your assets. Besides, you will accumulate enough wealth as time goes by. Thus, by the time it expires you will not need coverage if you survive the period.
Who Are the Best Candidates for A Longer-Term Length?
A couple that has just married can benefit immensely from reduced rates. Also, sharing life with your partner is a great milestone. You will create a home and share the best of your memories knowing that your partner is covered.
A term length that lasts beyond the term of a mortgage ensures that all debts will be paid. It saves your partner from unnecessary stress if something happens to you. A 40-year policy is even better since it guarantees to last up to the retirement age.
A young couple will enjoy the best rates available. They are young and healthy. So, the insurer must offer them the best rates for a long term policy or lose them to their competitors.
The length of the term policy to take depends on the financial situation of your family when you are not around. The health care and educational needs of the children are also vital. Thus, the term’s length needs to last until all children are financially independent.