10 (Ten) Year Term Life Insurance in 2016
Choosing the right term for your life insurance policy can be confusing. You don’t want to pay higher premiums for insurance that you won’t need but you also don’t want to be without insurance protection when you need it. So what should you do?
Term life insurance is typically the best policy for most Americans since it allows you to have the most amount of coverage at the lowest price. Some of the biggest proponents for term life insurance include the popular financial advisors you see on TV; Susie Orman, Dave Rasmey and Clark Howard. The strategy with term life insurance is to buy term and invest the difference yourself.
Term life insurance basics
Most people have major obligations which need protection for a certain period of time; 10-30 years. At a specific time in the future, usually the mortgage is paid down or paid off, the children are grown and your future income won’t need to be protected in the same capacity as it does today. Term life insurance will be the best solution if this describes your situation.
Term life insurance lasts for a designated period of time. The term period for most companies range from 10, 15, 20, and 30 years. The rates are locked in and do not change during the term your select, regardless of your age or health in the future (during the term period). Also, there is no penalty for cancelling the policy early.
So why would someone choose a 10 year term instead of a longer one? The reason is cost. The longer the term, the more expensive the premium will be. When people first here this, they think it is the other way around. However, statically of course, you are less likely to pass away in the next 10 years vs. 15, 20 etc. This equates to a reduced risk for the insurance company that they will have to pay out the death benefit claim, hence making the premiums lower for the shorter term.
Shorter term isn’t always the best
I recommend 10 year term policies for individuals who only need life insurance for a brief period of time. These people usually are more established and just need the protection for the next 10 years or less. Common scenarios are; parents who want to protect their teenage children until they graduate from college, seniors who just want to protect their income until retirement, business owners who need to cover a loan, mandatory life insurance as part of a divorce decree or if your budget is tight but you still need life insurance to protect your family today.
Families who have young children, a mortgage, are still getting established in their careers, a longer term will be a better choice. By choosing a 20 or 30 year level term, you are guaranteed a fixed rate for that duration of time regardless of your age or health in the future (for the term period). Since most of us won’t be as healthy as we are now in the future and none of us will be younger, it is wise to lock in a low rate now so you will have affordable premiums until you obligations are reduced, i.e. children are adults, mortgage paid down or off, more established in your career, etc.
As you can see the advantage of choosing a 10 year term is the cost. This is a great option for a lot of people, especially if you only need life insurance coverage for the next decade or less. However, for younger families who are still getting established and have additional obligations that need to be protected, a longer term; 20 to 30 years will probably be a better fit and will ultimately be deal in the long run. It will be more expensive today, but it will be well worth it in the future, not only in overall cost but in peace of mind.