Sometimes, buying life insurance gets a little overwhelming because there are so many choices you can pick from.
So let’s break down your term life insurance options so you can get a better grasp on what is perfect for you.
Remember: buy what you need!
There’s no point in over-insuring yourself, so if you can purchase the perfect amount, you’ll avoid overpaying.
Term Life Insurance Options
One of the great lessons I learned when I was in school was how much of something you need. A professor once started off a new semester by simply asking the question:
If you were going to start a business, how much money do you need?
Being such an open ended question, nobody was quick to try to answer it. To get the class going, he repeated himself. After a few awkward moments of silence, a few students threw out some answers.
$10,000–$20,000–$30,000! All sorts of answers poured out, and he just smiled. Then one girl asked, “Well, what type of business?” It caught the professors attention, but he replied “It doesn’t matter, …any business.”
Clearly no one knew the answer and he just smiled again, finally answering his question:
It was a great lesson because we went on to find out how not having enough capital could be detrimental to the business, and having too much which wasn’t working for you properly was a waste.
Life insurance is the same!
Knowing your term life insurance options thoroughly, and matching the right policy to your needs, is essential to make sure you’re fully covered, but not paying a dime more than you need to be.
Annual Renewable Term Life Insurance
If you need a policy for a very short duration of time, this is the right product for you. An annual renewable term policy is a type of life insurance where you pay the least possible premium for one year.
Should you decide you want to keep it for another year, you can renew it, but the price goes up a little bit each policy anniversary. If you’re looking for coverage for up to 5 years time, this type of policy will end up costing you the least total premium over the time span.
5 Year Term Life Insurance
A five year term life insurance policy is exactly what the name implies: a policy good for five years, where the premium is level for the entire duration. Honestly, there is little use of this product unless you really prefer to have a level premium, instead of one which changes yearly.
The most affordable coverage may still be an annual renewable term which you simply renew until five years has passed. If you need slightly longer than five years, even just six or seven years, a ten year term will probably be the next most affordable way to get covered.
This type of policy is popular for someone who is 60 years old and has five working years left, and they want to simply protect the future income to their spouse in case of an unexpected event just before retirement.
10 Year Term Life Insurance
One of the more popular choices, a 10 year term life insurance policy has one steady premium for a 10 year duration. While it’s twice as long as a five year term product, and you’d think it would be more expensive, it’s actually cheaper in some instances because there is more competition among carriers at the 10 year mark.
A 10 year term is popular for business owners who take out business loans, but are required to back the loan with a life insurance policy assigned to the lender. Because business loans are mostly offered at five and 10 year ranges, this policy will allow the owner to pay the least throughout the decade, while satisfying the loan requirements.
20 Year Term Life Insurance
This is by far the most common, because 20 year term life insurance is the go to policy for new parents.
When parents have their first child, they look to make sure their child is protected until they are old enough to take care of themselves. A 20 year term will allow them to keep a level premium for their insurance until the child is past 18 and either headed to college, or moving out on their own.
30 Year Term Life Insurance
A 30 year term life insurance policy is vastly growing in popularity. It’s also one of the longest term life policies available, so it has a huge array of practical uses.
For most, buying life insurance isn’t fun, and they just want to do it once and be done. Buying a long duration term is a way to guarantee level premiums over a majority of someones working life, and there’s little need to make changes unless a big life event occurs.
A 30 year term policy is also effective at covering a mortgage. If you buy a home, the best way to have a low monthly payment is to spread the mortgage over a 30 year period, and what better way is there to match the duration of the loan than a 30 year term?
Other Types Of Term Life Insurance Options
There are 15 and 25 year term life insurance options available if it suits your needs, and there are even companies who will offer term policies for a very specific duration, such as 16, 17, 18, or 19 year term policies.
If you don’t mind paying a little extra now, but want to get all of your money back if you never end up needing your policy, you could look into a Return of Premium term policy. Basically, if you keep the policy the entire duration you signed up for, you get all of your premiums back in a lump sum when the policy ends.
Here’s the key: buy the duration which matches your need. If you need insurance for 10 years, don’t buy a 30 year term life insurance policy or you’re throwing money out the window.
On the other hand, if you require a 30 year term, don’t try to slide by with a 10 year for now, because you’re only going to pay for it later, especially if you incur any type of health condition which might not allow you to get affordable coverage.