Term life insurance can be a great value, allowing you to buy a lot of coverage at a reasonable price. As long as payments are made, your term policy will cover you for the specific time period (term) that you signed up for when you first bought your policy. But with typical term life periods ranging anywhere from one year up to 30 years, how do you decide how long you'll need your policy?
Once you've answered “how much life insurance do I need,” the next step is choosing a term duration that makes the most sense for you. The following information can help you better understand the length of the policy term you should purchase.
There are a few cases for which a one-year term life policy (also known as one-year renewable life) can be beneficial. For example, if you're between jobs and the employer-based life insurance you had with your employer is now gone, this type of term policy can cover you until you're able to find employment and new benefits. As the name indicates, this type of policy lasts just one year, but gives you the option of renewal. So when the policy expires, you can renew it for another term without having to requalify for coverage. However, your new premium will be based on your attained age.
A five-year term life insurance policy is often purchased to cover the cost of a short-term loan or other debt such as a vehicle purchase. Sometimes called credit life, this short-term insurance is designed so that your loan will be paid in the event of your death. This may be a good choice if you're concerned about leaving your loved ones with the responsibility of having to pay off your creditors.
Much like a five-year term policy, a 10-year policy is better suited if you have short-term life insurance needs, such as paying off large debts. But another reason might be that the premium for a 30-year term is beyond your budget at this time. If you're a breadwinner with very young children and a 30-year term is unaffordable, you might consider shortening the term duration (even down to 10 years) rather than reducing your policy amount. In time your income may increase, allowing you to reapply for a policy with a longer term.
One of the most common times to purchase a 20- or 30-year term life insurance policy is when your family is growing and depends on your income the most. It can provide your beneficiaries with protection to replace your income as well as pay off debts such as a mortgage and provide funds for a college education.
Whether it's one, five, 10 or 30 years, ask yourself if the term life policy you're considering is going to meet your needs and objectives. A knowledgeable insurance professional can help you determine the policy length that's best for you.