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How Long Should My Term Life Insurance Policy Last?
Understanding that you need life insurance is excellent, but how long should your term be?
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Purchasing a term life insurance policy is a great step to protecting you and your family, but it’s essential to have enough coverage for the correct amount of time. With a term life insurance policy, you’ll be able to decide how much coverage you would like and how long you would like it to last — which is a valuable part of term insurance. However, it can be challenging to understand how long you actually need coverage for or if you need life insurance for your entire life. So we’ve broken down how to figure out what kind of insurance you need, how much you should take out, and more.
How Long Do I Need My Term Life Insurance Policy?
Defining Term Life Insurance
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Before we dive into the specifics of term life insurance policies, it’s best to cover the basics. Term life insurance is the simplest type of life insurance, making it the most suitable for most people. As the policyholder, you pay a premium for the length of time you decided on — anywhere from 5 to 40 years. Not only is term life insurance the simplest, but it is also the most affordable type of insurance. Unlike permanent life insurance policies, there is no cash value. In your term policy, your premium will usually stay the same month over month.
There is an application process called underwriting, where the insurance company determines what your premium will be for your plan. The carrier will typically request a medical exam to assess your weight, blood pressure, and more. Along with health concerns, your age, gender, and career affect your premium’s price.
Determining How Much Coverage You Need
There is no exact equation that you can use to discover the amount of life insurance coverage you should purchase. However, you can make a very close estimate when considering your financial situation and what you want to use your payout on if you pass away. Take a look at these three rules of thumb when calculating your life insurance needs. Although these rules won’t work perfectly for everyone, you can also use a life insurance calculator.
Multiply your income by 10
Multiply your income by 10, then add $100,000 per child
The DIME formula
Debt and final expenses
Income
Mortage
Education
Understanding How Long You Need Coverage For
The term length of your policy will be based on how much coverage you need, how much you can afford, and how much you are qualified to purchase. In general, a term length should cover all of your financial obligations and any outstanding debts. Debts can include credit cards, mortgages, student loans, business loans, and anything else you are responsible for paying. The length of your term life insurance policy can also depend on why you are buying the insurance. Here are a few common reasons why people are purchasing life insurance.
Having a child: If you are a new parent, you need to purchase a plan that will last until your child is financially dependent — usually around 18 years old. A policy that is 20-30 years in length is suitable to cover your child until college graduation.
Buying a house: Being a new homeowner means that you’ve got a mortgage to pay off. Depending on how long your mortgage is, you’ll want to add an extra cushion for your life insurance. For example, if you have a 20-year mortgage, purchase a 30-year life insurance policy.
Recognizing Term Length Can Affect Premium Price
The longer your life insurance term is, the higher your premium will be — why? Because a longer policy term gives you more of a chance that you will die, and the life insurance carrier will have to pay your death benefit. On the other hand, one advantage of buying a life insurance policy for the longer term is locking in a lower premium. The younger you are, the lower your premium will be, so it’s best to purchase it as soon as you can. Your policy premium will not increase after you buy it, so it’s best to get the most affordable premium you can.
When searching for the most suitable term life insurance policy, it’s crucial to quote various plans from different life insurance carriers. With Fabric, you can receive several quotes for yourself in as little as ten minutes. In addition, Fabric allows you to build a life insurance plan that fits your family’s plans. Check out Fabric to follow their three easy steps to purchasing life insurance and protecting your family.