Why would someone choose Short Term Life Insurance?
Short term life insurance might be a good fit if you have short-term goals or want financial protection for a specific amount of time. Reasons for utilizing short term life insurance might be one of the following:
- If you have a 20-year home mortgage, then you may want to purchase a 20-year term policy. That way, you will know that your family can pay off the mortgage and remain in their home should anything happen to you.
- A term policy might also be a good option if you want insurance coverage just for the years you are paying for a child’s education.
- Maybe you are paying off a business loan and you don’t want a spouse or partner to be burdened with the balance.
- Additionally, If you are a small business owner, term insurance can be used to protect against the untimely death of a key employee.
In each of these examples, the term ends along with your specific financial obligation, so you are not paying for coverage that you no longer need. For that reason, term life insurance can be a flexible and affordable coverage solution for a range of situations.
Are there Differences Among Term Insurance Policies?
The biggest differences between term insurance policies are the length of time the coverage is for. Some term policies offer optional features called riders that allow you to customize your policy. For example, you can add your children to your policy or get accidental death protection if need be.
Moreover, a term insurance policy can be increasing or decreasing. A decreasing term life insurance policy would best be used to cover the life of a homeowner for the death benefit to cover for a mortgage. For example, the primary breadwinner of the family and their spouse is on the deed and the mortgage. The primary breadwinner passes and leaves the mortgage debt to the stay-at-home spouse. In this case, the 2nd spouse would need to either go get employment to make the income to pay debts, including the mortgage, or lose the house and possibly all the assets or (worse case scenario) marry immediately so he/she can have another primary breadwinner to fill the financial void. The decreasing term insurance death benefit can be used to pay off the mortgage and possibly all the other debts as well, leaving the stay-at-home spouse to effectively grieve and move into the next season of life without much worry or unnecessary anxiety.
Increasing term life insurance could be used in the case of having several children that might accrue education debt in future years and the parents feel as though they want to cover the cost. In the parents’ demise, the increasing term death benefit would be able to cover the entire cost (if not a large portion of the cost) of the children’s education cost without worry or unnecessary anxiety.
At this point, it is important to note one unique type of term life insurance policy which is what is known as a return of premium term policy. With this type of policy, all premiums that have been paid are returned to the policy owner at the end of the level-premium period (terms and conditions may apply).
What Happens at the end of the Term of a Term Life Insurance Policy?
At the end of the term, you have the option of letting your coverage end, keeping it by continuing to pay the premiums, or possibly converting it to some type of a permanent life insurance policy. We discuss various types of permanent policy options in another blog. Remember, if you do choose to convert, be sure to work with a reputable company that offers quality life insurance options.
If you choose to keep the policy after the level-premium period ends, your premiums will increase each year as outlined in your contract and usually will stop at age 85, unless otherwise indicated when the policy ends.
How Much Term Life Insurance Do I Need?
As a general rule you should purchase a term life insurance policy for 10–12 times your annual income. That way, your salary will be replaced for your family if something happens to you.
And don’t forget to get term life insurance for both spouses, even if one of you stays at home with the kids. Think about what you would pay in childcare and home upkeep costs if the stay-at-home parent was gone! No matter what, you both need term life insurance.
Want to make sure your family is covered no matter what happens? Check on your coverage BEFORE it becomes an emergency.
Most financial professionals recommend that if you decide to buy a term policy be sure it is with a term that will see you through until your kids are heading off to college and living on their own. That might be anywhere from 20 years, if you already have children, to 30 years if you do not have children or aren’t finished adding to your family yet.
A lot of life or death can happen in 20 years.
Don’t Wait Until You Need Life Insurance to Get It
The truth is, we cannot see the future and aren’t promised tomorrow. Life is precious! And the ideal time to buy life insurance is when you are young and have a clean bill of health. Especially since life insurance companies are all about weighing the risks of the person purchasing the policy.
Our strong opinion is that you should get your term life insurance policy, as much as you can afford to cover as much of your family’s needs, as possible. (In hindsight timing is everything). Then take as many funds as you possibly can, immediately set up your emergency fund and then set a short term plan to push hard to put as much as you possibly can in a very wise (and fully proven) investment to allow your money to grow in your sleep! That way you can begin building your nest egg. Unless you can imagine yourself working until the day you die, then why not work now while you can in order to prepare for those later years so that you can actually enjoy the fruits of your labor.