When considering life insurance, the right term for you depends on:
- How long someone else will rely on your income (or care you provide, if a paid caregiver would need to be hired in your absence)
- How confident you are that you and your family will be on track financially in the future
We’ll walk you through this in detail, but if you want our interactive Life Insurance Guide to do the “heavy-lifting” for you, we’ll ask you a few easy questions and suggest a term for you.
#1 is more obvious: if someone depends on your income (or unpaid care), then you definitely need insurance for that period of time to replace the income (or hire a replacement caregiver) if you were suddenly gone.
#2 is less obvious, but consider this example: Christine and James are married, with an only child, age 3. They want to make sure their child is fully supported through college, up until age 21.
That’s 18 years from now.
Term insurance is typically sold for terms of 5, 10, 15, 20, 25 or 30 years.
18 years rounds down to 15 year term, or up to 20 year term.
Which term should Christine and James buy?
It comes down to how confident they feel that if one of them were gone 15 years from now (say the day after the life insurance term ended), there’d be enough financial resources to support their child for another 3 years, and ensure the comfortable retirement of a surviving spouse.
If they’re crushing it on retirement savings, then rounding down to 15 year term is probably fine, because they are on track to have a big nest egg and are devoting a good chunk of income to annual savings. The nest egg and the annual contributions would be “freed up” to support the child and the surviving spouse - retirement for one person is cheaper than retirement for two.
But if Christine and James are either thinly stretched financially, or simply prefer to be more conservative, then rounding up to 20 year term might be the better call.
Our interactive Life Insurance Guide asks you a few simple questions and runs this analysis for you!