What is the right term length for your individual needs. There are several different length policies to choose from including 5, 10, 15, 20 and 30 year fixed. How do you know what length you should have?
The main questions to ask yourself is how long do I think I will have a life insurance need? Can I be 100% sure that I will need life insurance for that period of time or will I possibly need it longer? Will I ever convert part of the policy to permanent insurance, and when should I do that?
Those are all important questions that I like to ask my clients. Usually, you will have a need for life insurance as long as you are working to protect your spouse and children. Some may argue, that once the children reach maturity there will be a smaller need for insurance. That may be the case, if your savings can supplement the life insurance to protect your income for your spouse. It does make sense especially when the children are young to max out the amount that you buy.
The time period is important to figure out as well. For example, if you buy a 20 year term your insurance needs could easily change in that period of time. It is pretty hard to know anything for sure. I would suggest that if you have kids are young to buy at least 20 year term to cover them through college. If they are older, you may be able to get a shorter term to get them through college. Some people like to buy a policy that is 30 years that will cover the full length of all of their liabilities (mortgage, college, etc.). Thirty year return of premium (ROP) policy’s have become very popular for this purpose.
Many of our clients do a combination of term and permanent to take care of large short term needs and cover their long term needs as well. For example, a client with a newborn who needs to buy 2 million dollars of face amount, might buy $200,o00 in whole life insurance and 1.8 million of 20 year term. He can only afford $200,000 at this point of whole life, but now has a long term and a short term strategy that will provide some protection as long as he lives. The sooner you buy permanent insurance the better as you lock in the mortality rate at that age. When the term premium goes up in 20 years, the permanent premium remains level.