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finance term life insurance

When Should You Buy Term Life Insurance?

Thinking about what kind of life insurance to buy can make your head spin. First you have to comprehend what the different kinds of life insurance are, and then you have to think of the applications of that policy and how it might affect you and your family.

And, while this isn’t the best forum to discuss what kind of life insurance to buy due to having a general audience, we will help to go over what some kinds of applications for term life insurance are and when buying it might be advantageous over buying a permanent policy.

So What Is Term Life Insurance?

We’re going to specifically be discussing level term life insurance. We have to specify because there are several types of term life.

Level term life insurance is a fixed premium insurance that insures a person’s life for a specific amount (death benefit). The term will usually be 10, 20, or 30 years. After that term is over, the insurance will expire and if the insured further wants to be covered by life insurance, they would have to reapply, at which point insurance coverage would likely be considerably more expensive.

So When Should I Buy Term Life Insurance?

The timing for when to buy term life insurance is usually triggered by a life-changing event: getting married, having children, etc. As soon as a person has others relying on them, that will generally be the best time to consider buying a term life insurance policy. The reason for this is because if that person is to pass away, their spouse, children, or whomever they name as beneficiary will receive the death benefit outlined in the policy.

In general, level term life insurance is best when coverage is only needed for a specific term. If a family believes that they only need coverage during their accumulation phase when they are saving for retirement, their kids’ college expenses, and any other expenses that come up during that time, term life insurance for a 20 or 30 year term might suffice.

Some people fail to save enough for retirement in time and as they approach it, and they may be scrambling to save everything they can. Without sufficient saving reserves at the moment, a term life policy for 10 years (although considerably more expensive due to age) might make sense for them.

You’ll want to own term life insurance when you need the coverage for a specific term and only the specific term. Otherwise, if you would need to be covered for your entire life, it might make sense to look at owning a permanent life insurance policy.

Another strategy that a family may use is to own a large term life insurance policy as well as a modest permanent life insurance policy during the accumulation phase. As retirement approaches and their savings are enough to cover them in event of a disaster, it may make sense to drop the term life insurance policy and keep the smaller permanent life insurance policy in force because they no longer have the need for a lot of coverage.

We will look at this strategy and many others in-depth in future posts.

 


This article does not constitute financial advice. For information regarding your specific situation, please consult your local financial advisor.