It can be unsettling to consider an untimely demise. But if you have dependents, taking the time to help protect them against this unlikely possibility could make all the difference. That’s when life insurance enters the picture.
Term life insurance can be a smart move for your family’s financial future. But how much insurance should you purchase? And how long should the policy run for? Ultimately, the right life insurance coverage amount and term length for you will be impacted by your unique financial situation.
In partnership with Bestow, let’s explore what your life insurance policy should look like to protect the ones you love most. Bestow is an online life insurance agency that can quickly get a term life insurance policy (if approved) with no medical exam by answering a questions about your health, medical history, and lifestyle to help determine your eligibility. Take a few minutes and get a quote here >>
What’s The Right Life Insurance Term Length?
When choosing a term life insurance policy, one of the most crucial details is deciding appropriate term length. As with all personal finance decisions, the right term length will come down to the unique characteristics of your finances and life goals.
Here are a few considerations to keep in mind when choosing your life insurance term length.
In general, the reason you take out a life insurance policy is to protect your dependents from financial distress in the event of your early death. So a primary consideration for term length should be the amount of time you expect to have dependents relying on you.
For example, a parent with young children may decide on a longer term length than a parent with children in high school. Take some time to think about how long your dependents will need your financial support.
In some cases, the timeline may be shorter than others. But it makes sense to err on the side of caution by choosing a term that you're confident will be long enough to provide financial support to those you leave behind until they're financially independent.
The outstanding debts you have on the books should also be considered when choosing your life insurance term length. One of the most common big-ticket obligations is your remaining mortgage balance.
For example, let’s say that you have 20 years left on your mortgage. If your survivors could not easily cover the remaining balance, it probably makes sense to get a life insurance term of at least 20 years. Otherwise, those you leave behind may be forced to sell the home to satisfy the remaining mortgage debt.
Any other debts that your family may have to finish after your loss should impact your term life insurance decision as well. For example, you may want to look into what will happen to your student loans if you die before they're paid off.
Once you've decide which life insurance term length is right for you, consider getting a quote from Bestow here >>
What’s The Right Life Insurance Coverage Amount?
Experts often recommend buying enough life insurance coverage to replace your salary for ten years. For example, let’s say that you are your family's primary breadwinner and earn $100,000 per year. You should buy at least $1,000,000 worth of coverage with this rule of thumb.
But the exact right amount of life insurance coverage will vary based on your unique situation. Here are a few considerations that can help you narrow down your number.
An easily overlooked cost is any final expenses associated with your passing. Unfortunately, funeral and burial expenses can add up quickly. In addition to comparing funeral fees and planning for these expenses now, you may want to add enough coverage to provide for these unavoidable costs.
We already included "obligations" in the previous section on how to determine the right life insurance term length. But your outstanding debts should influence your life insurance coverage amount as well.
If you have a mortgage balance or any other shared debts, you should add those outstanding debts into your final coverage amount.
In keeping with the example above, let’s say that this breadwinner has a remaining mortgage balance of $100,000. In this case, they should consider increasing their coverage amount to $1,100,000.
Large Future Expenses
Many people have big-ticket expenses that they know are likely to pop up in the future. One of those major expenses could be the college tuition you intend to provide for your children.
Some experts recommend adding an extra $100,000 per child for college costs to your life insurance coverage amount just to be safe. But you may want to add less, more, or none at all. Run the numbers on the average cost of college and how much you want to contribute to your child’s education to help you decide.
You’ll want your children’s education to continue as planned, with or without you in the picture. But that might not be feasible for your family without the safety net that life insurance can provide.
When shopping for life insurance, term policies are usually the cheaper option. But you’ll still need to nail down the right term length and policy amount that fits your budget.
Once you have an idea of what you need, applying for life insurance needs can be easy with Bestow. The online term life insurance agency offers low-cost options with just a few minutes of your time. Plus, there’s no obligation to move forward - just get a free quote and see if it makes sense (hint: it usually does). Check out Bestow here >>
Want to explore Bestow as an option for your term life insurance needs? Check out our full review to decide if this online life insurance company is the right fit for you.
Life insurance quotes provided by Bestow Agency, LLC dba Bestow Insurance Services in CA, who is the licensed agent. Term Life Insurance Policies offered by Bestow are issued on policy form LS181 and LS182, or state version including all applicable endorsements and riders, by North American Company for Life and Health Insurance®, Administrative Office, One Sammons Plaza, Sioux Falls, SD 57193. Products or issues ages may not be available in all jurisdictions. Limitations or restrictions may apply. Not available in New York. Our application asks about your lifestyle and health to determine eligibility in order to avoid requiring a medical exam.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.