Unlike whole life insurance, term life insurance is temporary. When you purchase a term life policy, you get to choose how long your life insurance will last.
What is the best term length for life insurance? The answer is, of course, subjective. It depends on your financial situation and coverage needs. This article can serve as your guide if you’re wondering how to calculate your coverage needs and ideal life insurance term length.
But first, let’s cover the basics of term life insurance.
What is a Term Length?
When you buy a term life insurance policy, you are prompted to choose the length of time your coverage lasts, typically anywhere from ten to thirty years. The duration of your policy is called a term length.
Once your policy’s term expires, coverage stops. You can then purchase a new policy, go without coverage, or, if your life insurance company offers the option, extend or renew your term life policy without getting another medical exam and going through the underwriting process again.
If you go this route, it’s important to note that you will be older and likely have a higher premium payment because life insurance rates are determined by several factors, including age and health status.
How Do You Choose a Term Length for Life Insurance?
Do you need a ten-year policy? A twenty-year policy? A thirty-year policy? The answer can probably be found in your finances and by counting the candles on your birthday cake.
Here are some things to consider as you decide on a life insurance term length:
1. Your Financial Obligations
Think about how long you might need some financial protection for your loved ones. If you want to ensure your children are covered until they can provide for themselves, a twenty-year policy might be enough.
On the other hand, if you want to make sure your recently acquired mortgage is covered, then perhaps a thirty-year term makes more sense.
2. Your Age
When you buy a term life insurance policy, you lock in the premium rate for the life of the policy. Insurance premiums tend to increase as you get older. If you purchase a thirty-year term life insurance policy in your twenties, your premium remains the same while the policy is in force, all the way through your fifties.
But if you purchase a twenty-year term policy in your twenties and then decide to buy a new policy when it expires, your life insurance rate will likely increase because you are older.
And in the economy? Locking in rates isn’t a bad idea.
3. What You Can Afford
|Term Length||Average Premium Cost|
Quotes reflected are an example from Bestow for a 25-year-old non-smoking female in good health on October 2, 2022. Your actual premium will be determined by underwriting review.
Generally, a longer level term will have a higher monthly premium but will save you money over time.
Think about how much you can comfortably afford to spend on a term policy. Then, you can get a quote and consider different coverage amounts and term lengths until you find what works for your budget.
And if at some point you no longer need coverage, you can cancel your life insurance policy at any time. Another possible option — some insurance companies allow policyholders to lower their coverage amount for the duration of the policy, which would likely decrease the premium.
How Much Life Insurance Coverage Do You Need?
After you figure out what life insurance term length you need, the next step is to choose the coverage amount of your policy.
You can use the DIME method to estimate your insurance needs by writing down relevant dollar amounts under each letter and then adding them together. The total amount should give you a ballpark idea of what your coverage needs.
DIME is an acronym for:
- Education [and Child Care]
DIME presents a few factors you might want to consider when choosing a life insurance term length and death benefit.
D – Debts And Other Financial Obligations
- Credit card debt
- Student loans
- Car payments
- Living Expenses
I – Income Replacement
- Primary income earner salary
- Secondary or supplemental income
- How many years until your children can provide for themselves
- How many years stand between you or your spouse’s retirement
Some financial experts recommend multiplying your annual salary by 7-10 to determine the amount of coverage you may want.
M – Mortgage
- Length of your mortgage
- Payoff amount
- Interest rate
E – Education (And Childcare)
- Cost of childcare
- College tuition
- Annual K-12 tuition, if applicable
- Other school expenses: materials, books, clothes, etc.
Who Needs Life Insurance?
Pondering your mortality can feel uncomfortable, but doing so can help give you a little peace of mind. Life insurance can help financially support the people who depend on you if you pass away.
You should consider buying life insurance if:
- You have young children
- You’re spouse or parents are dependent on your income
- You have debt, or you’re a co-signer on a loan
- You’re a new homeowner
- You want your funeral expenses and other final expenses covered
Can You Apply for Term Life Insurance Online?
Once you determine the life insurance term length and coverage amount you need, you can start shopping around for a policy.
If you’re curious about your life insurance rate, you can get a life insurance quote in seconds by sharing your age, height, weight, gender, and smoking status. Once you see how affordable life insurance can be, Bestow’s makes applying for coverage super easy.
The entire application is online, and there is no medical exam. Everyone gets an instant decision, and you can purchase up to $1.5 million in coverage that same day upon approval.