How Long Should My Life Insurance Last? (Part 4 of 5)

Now that you are ready to buy term life insurance, the last step is to figure out how long the policy should last.

Quick Recap

Up to now, we’ve covered three questions:

  1. Why should I buy life insurance?
  2. How much life insurance should I buy?
  3. Which type should I buy, term or perm?

If you don’t remember the answers, feel free to click the links above to catch up. We’ll be here when you come back.

Protect the Paycheck

The easiest way to know how long your term policy should be is to count how many years you have until retirement. One of the greatest financial benefits we have for our families is our income. The loss of that income can be devastating, and life insurance can help replace it.

Once retired, you won’t be working any more. Since you won’t be earning a paycheck, there is not much left to protect with life insurance. You may be asking, “What if I don’t know when I am going to retire?” Well, use your best guess. We don’t know what the future holds for any of us, and we can only plan for what we hope will happen.

What is Offered?

When shopping around for policies, you will find that term policies usually come in multiples of ten (10, 20, or 30 years). It is possible to get life insurance policies for 5, 15, and 25 years, but you’ll have to shop around, and some of them come with restrictions. For example, State Farm will sell a 5-year policy, but there is a limit to how much death benefit you can get.

If you plan to retire in an odd number of years—such as 22 years from now—you want to round up for three reasons. The first is because you can almost always cancel a term policy with no penalty. The second is that you won’t be able to find a 2-year life insurance policy. Finally, if you want to get a new insurance policy, the premiums will go up because you will be older. It’s better to lock in your rates today for the long haul.

Right now (January 2015), a 30-year-old could get $500,000 in term life insurance coverage for around $50/mo. A 50-year-old would cost closer to $150/mo, so instead of tripling your premiums for two years, just buy a longer policy to begin with.

Final Expenses

There is one good reason to buy some life insurance when you are retired, and that is to leave money for your final expenses. Leaving some money for your spouse or family to help with a funeral, legal fees, or some emergency cash could be worthwhile.

Coming Up Next…

Be sure to check back in for our 5th and final part to this series, life insurance and your business