Last Updated: 02/20/2018
Hope for the best, plan for the worst, and you’ll sleep better at night.
Are you considering purchasing a Term Life Insurance policy to protect your family?
Term life insurance policies are designed to provide for your family’s financial needs in case the unexpected were to happen. When purchasing a term policy, the “term” is number of years your life insurance policy cost and coverage amount are guaranteed not to change. For the duration of the policy, the insurance company agrees to lock in your policy “face value” (death benefit) and premiums (cost of your coverage) regardless of any changes to your health or lifestyle.
After deciding term life insurance is the best solution for your needs, it’s time to choose how many years to lock in your coverage cost. How long should my term life policy be? Let’s find out!
The following are common reasons for buying life insurance, and items you may wish to consider in choosing the right term for your family’s protection.
Quick Article Guide
- Protecting Your Children’s College Expenses
- Protecting Your Mortgage
- Protecting Your Income
- Protecting an Estate/Funding an Inheritance
- Whole vs. Guaranteed Universal Life
- We Can Help
Many of our clients tell us they wish to ensure that their children will have the means to attend college, through the time they finish 4-7 years of higher education and would likely be financially independent.
EXAMPLE: Let’s say that you have two children, ages 6 and 4.
Choose your term length by your youngest child’s age. Since your youngest is 4, a 20 year term policy is a good fit and the most common term purchased. A few companies, including American General (AIG), offer 25 year terms, so if their rates are competitive for your age and health profile, a 25 year term would be a good solution.
A 30 year term would cover just about all scenarios, but could be 20-30% more in cost. Have your JRC agent provide comparisons. Keep in mind, there’s no penalty to cancel a term policy early, and you don’t have to choose your policy term length when you apply for coverage, only when you’re eventually approved and have an assigned “risk class”.
If a 30 year term is affordable, locking in the greatest amount of time you may possibly need is a common choice. Most people want to avoid reapplying for life insurance in their 50’s and 60’s as the rates tend to be much higher.
In recent years, more and more consumers are purchasing term life insurance as an alternative to a traditional mortgage policy. The price is usually better, the coverage is generally more comprehensive, and your family member is the beneficiary, not your lender. This last point is the most important. If you were to suddenly die, there will certainly be a number financial issues than just your mortgage to settle…property taxes being one.
Selecting the right “term” to protect your mortgage is easy to calculate. Let’s say you just purchased a home with a 30 year mortgage:
A 30 year term policy for the amount that the bank has lent you should be your starting point. Look for a policy that would allow you to reduce your coverage amount in the future as you pay down your mortgage.
If you’re 40-years-old or older and looking at a 30 year term policy, the cost may be pricy. An alternative would be to purchase a 30 year term policy with $100,000 death benefit, and the balance on a 20 year term. This strategy could save you a few thousand dollars over the next 30 years; the savings may be best spent paying down your loan. If you pay off your loan early, you can easily cancel that 30 year term policy.
Another common reason people purchase term life insurance is to make sure there’s something in place to replace their lost income should they die prior to retirement.
Frank is 37-years-old and plans to retire at age 66. Frank is the primary breadwinner for the family, and Dianne (his wife) works part-time.
If something happens to Frank before he reaches his planned retirement age, Dianne wouldn’t be in a position to pay her expenses, let alone investing for retirement.
Frank wants to mitigate this risk by purchasing term life insurance to bridge the gap until the time he reaches retirement.
In this situation, it makes sense for Dianne to purchase a 30 year policy on Frank. This policy will make sure that if Frank dies prematurely, she’ll have the funds to replace Frank’s lost future income. Dianne will never have to dip into retirement investment accounts, or rely upon her children to provide for her. Her risk is mitigated, allowing her to plan for a retirement of spoiling grandchildren in her own home.
Life insurance payouts provide a tax-free lump sum to your beneficiary/beneficiaries, but we also have some reduced price products if you’re willing to receive an annuity rather than lump sum. One of our clients recently purchased this type of policy with the intent of the death benefit to be used to provide future living expenses for a disabled autistic child. Money paid over time is more desirable than a lump sum, and the policy cost was nearly 15% lower than our client expected.
If you’re not sure how much life insurance you should buy, feel free to read our article about income replacement or term to retirement, and take a look at our life insurance calculator to determine the right amount of coverage for your needs.
If you’re “old school” like me and want help from a licensed professional based in the USA, call and speak with one of our expert agents. We pride ourselves in being helpful, not “sales-y”.
In just a few minutes, we will be able to recommend the right coverage amount, term length and company for your needs, and even pre-qualify you or your spouse right over the phone.
What if you need life insurance that will pay regardless of when you die?
Some of the clients we work with need to buy life insurance that will protect them for the rest of their lives. whole life insurance used to be the most common type of life insurance purchased for this situation, however, in recent years, guaranteed universal life has become the crowd favorite.
One of the main differences between whole life insurance and guaranteed universal life insurance is the cost. Whole life insurance can cost double (or more) than guaranteed universal life insurance because the policies are building “cash value” which can be later borrowed against, or used to fund an investment.
It sounds good in theory, however, the associated management and loan fees are very expensive. In effect, you’re also paying interest to borrow your own money. If you don’t repay it, your policy death benefit will be reduced. Even more common, the policy will cancel if the “loan” isn’t repaid.
These lifetime policies also often carry high “surrender fees” if you cancel the contract early.
Whole life policies are complicated contracts. It’s not uncommon to end up with a policy which will pay the death benefit, but the life insurer retains any “cash value”.
Most independent, non-commission financial advisers will recommend keeping your insurance and investments separate. “Invest with an investor, insure with an insurer”. You’ll almost always end up with more control of your savings, and pay less in investment management fees.
The cost of whole life insurance is so high, that many policyholders are under-insured. They can’t afford the cost for what they were original intending to fund or protect.
To learn more about possible pitfalls of whole life insurance, please read our article what is “Guaranteed Issue Life Insurance and How Does it Work?”
Guaranteed universal life insurance can be a great alternative. The policies work much like a term life insurance policy, but instead of having rates and coverage locked in for a specific amount of years, you’re securing them to a specific age.
Policy death benefits are available from $50,000 to $5,000,000 (or more), guaranteed to age 90, 95, 100, 110, even 121.
Some of these policies include an investment option – that’s where the insurer is hoping to reap profits. We recommend saying “no thanks” to these offers. Repeat after me…“invest with an investor, insure with an insurer.”
For a comprehensive overview of the cost and benefits of Guaranteed Universal Life Insurance, please read our featured article, “What is Guaranteed Universal Life Insurance?”
No matter what your need for life insurance is, we’ve likely helped many people in similar circumstances, and are glad to help you and your family. JRC agents are fully licensed, and have had pre-qualification underwriting for many years. This gives you a key advantage; you’ll know today what to expect to pay for life insurance, and which highly rated companies offer best rates to people just like you.
Your call and quote comparisons from the most competitively priced life insurers are completely free. You only pay for your insurance, and every policy has a 30-day money-back guarantee.
Do you have questions or want to learn more? Call us Toll-Free at (855) 902-6494.
We look forward to helping you!