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Choosing the Right Term: How Many Years Do You Really Need Life Insurance?
Founder & CEO
Wallis is the Founder & CEO of AboveBoard Financial, a company reinventing investment advice and insurance with revolutionary transparency and honesty. Wallis spent over 10 years at Goldman Sachs as an investment banker and hedge fund investor in financial institutions. She founded AboveBoard to cut through the BS and present important choices with clarity and compassion. Wallis lives in New York City with her husband and two young children.

I often get asked about choosing the right term for life insurance. It’s an important decision - choosing the wrong term could mean adding financial distress to your loved ones’ grief. So I’m sharing best practices for figuring out both what you need and what you may want.

Our interactive life insurance guide will make suggestions for you, based on the information you share about your situation and goals.

Sometimes people have the idea that it’s easy to extend at the end of your term. That is usually incorrect.

Although you can extend your coverage beyond the initial term with most policies, it’s typically very expensive for the coverage you get: either the premiums go way up, or the death benefit goes way down. Neither is a good outcome for you if you want to continue your coverage.

Also beware the assurance that all term policies can be converted to permanent life insurance. While often technically true, the menu of policies you can convert to is usually very limited, including poorly constructed policies that would make sense only if you were gravely ill at the time.

The main point: it’s important to get the term right upfront, which you can do by making sure the term covers you for as long as you expect to have people depending on your income, or care that you provide for free.

Example: Say you work outside the home, your youngest child is 3 years old (no plans for additional kids), and you want to provide financial support through college graduation. Your youngest will likely finish college in 18 years, so 20 year term would fit your goals.

(Side note: all major carriers offer 10, 15, 20 & 30 year terms, some offer 25 year term, and a handful offer other terms.)

If you have a spouse or partner in your life, it’s also important to ask yourself: will that person likely need your income after your kids are financially independent?

Example: You feel confident 20 year term will get all your kids through college. But when you think about saving for retirement, you worry that your spouse might not be able to comfortably retire if your income vanished the day after your 20 year term expired. In this case, 30 year may be a better choice.

People often miss the fact that dual-income households can have "financially codependent" spouses who will need each other’s incomes to reach the retirements they want. If that financial codependency will likely last longer than the time the child(ren) are dependent, then a longer term might be needed.

But some two-parent families feel that their retirement savings are on track enough that - if one spouse died around the same time the kids are independent - the surviving spouse would be able to retire comfortably with the future nest egg and their own income.

Remember that a dependent person can also be a parent, sibling, or anyone else who counts on your income or care you provide for free.

Now you know how to think through choosing the right term. But there are also times when you can go for a shorter or longer term.

I go into some common examples below.

When It’s OK to Buy a Term Shorter than How Long You’ll Have Dependents

There are two common times when it’s reasonable to buy a shorter term than the amount of time you expect to have people who depend on your income or care.

1) When you can likely “self-insure” the last few years

Example: Say you just had twins. You feel your family is complete. You want to cover them until they are age 21. That’s 21 years. Do you need 25 or even 30 year term? Not necessarily. You might be just fine rounding down to 20 year term.

To decide you can ask yourself:

  • If you have a spouse / partner: would they be able to comfortably retire on their own income plus your future nest egg, if you passed away the day after the shorter term expired? (in this example, that’s 20 years in the future)

If your reaction to that is, “we’re on track with retirement, I’d expect that in 20 years we’ll have enough saved to either comfortably cover retirement for one person, or - with continued savings from the surviving person - they’d be able to fund a good solo retirement” then you can probably round down without undue risk to your family. (But you may not want to, see When You Should Consider Going for the Longer Term below.)

If your reaction is closer to, “After putting two kids through college I expect we’d need to really power up our retirement savings for several years to be on track for the retirement we want, even if only for one of us”, then you should think about going longer than 20 years.

2) When the shorter term is already at the outer limits of what you can afford.

If you have dependents, something is always better than nothing. If you’d like coverage for 30 years but 20 years is what you can afford, do not just sweep this matter under the rug. Denial is not the answer here - in fact, it can be disastrous. You need to get something in place.

Rounding down is always better than nothing.

Also consider whether you can reduce coverage and term to meet your budget goals. One of our insurance experts can help you find the trade-offs that best suit your goals, including your budget. Visit our insurance guide - use chat to get help from a human expert.

When You Should Consider Going for a Longer Term

There are some situations where buying longer term may make sense, when you can afford it.

1) When you hate the idea of dying and have the budget to afford a longer term than the minimum necessary term

Dying sucks, particularly when it happens before you’ve enjoyed a joyful old age. Whether it’s your kids’ (and grandkids) lives that you’d wanted to live to see, time with a spouse, partner and/or friends that you looked forward to, or places in the world you had hoped to explore, the idea of missing out is crushing.

If you’re diagnosed with a terminal illness, term life insurance can provide extra funds if you happen to receive such bad news at a time before you’ve had a chance to enjoy the retirement you aspire to.

Some policies let you access a portion of the benefit early while you’re still alive if you have a terminal illness, or you might decide to spend more of your savings, knowing that your loved ones will receive your life insurance benefit.

Example: Say you expect 20 year term to cover the time your child(ren) are financially dependent, and you’re either single or feel confident that you and your spouse will have enough saved for one person’s retirement by then. You certainly could get by with 20 year term. But in a scenario where you (or any spouse) receives a terminal diagnosis 22 years from now, you may like to have the option of taking early retirement and not making any compromises financially - say you quit your job(s) and try to jam the retirement you’d dreamed of into whatever time remains.

This option is a “luxury good” of sorts - you do not need it, but you may decide you want it.

2) If you think you might have more kids

If you think you might have more children in the future, choosing a longer term will give you the option of having inexpensive term coverage for longer. It’s sometimes difficult to know when your hope for additional children will come to fruition.

You might still decide “yep, I’m good on only the necessary term for my existing children” and that is 100% fine, we just wanted you to consider it.

3) When you’re wealthy or on track to be wealthy to a degree that triggers estate tax

Permanent (not term) life insurance can sometimes be helpful with estate planning. Many high-earning people do not need permanent insurance today, but might find that being able to get permanent insurance in the future - regardless of their health at that time - is very valuable for estate planning.

You can guarantee yourself the option - but have no obligation - to convert your term policy to a permanent policy by buying a term policy with a good conversion option. Getting a longer term and a good conversion option gives you that option for longer.

We go into more detail about how people with higher levels of wealth and / or future earnings can benefit from a term policy with a good conversion option here.

Again, getting coverage for longer than you need is a choice, not a necessity, but it can be a good choice for people when it’s a well-priced option, you can afford it and one or more of these scenarios resonate with you.

Check out what term we recommend for you in our interactive life insurance guide - it will also help you understand if you’re in the group of people who should even consider permanent (spoiler alert: most people should stick with term).