If you have come to a point in your life when you feel like you need to get life insurance you are faced with many choices. In many cases when people make the decision to get life insurance for themselves it has to do with a life event. They have gotten married, bought a house or had a child. These events often highlight the fact that if something happened to you that there would be a financial effect on someone else so you look into insurance as a way to offset that effect. Let’s look at the decisions that you make now and how they affect you in the future.
In many cases the first coverage that any one buys will be term life insurance. There are a few things that you need to keep in mind. Make sure that you get enough coverage. Many people are surprised by this fact but there are different ‘unit’ prices available for insurance. In fact there are carriers where a $250,000 death benefit is less expensive premium-wise than a $200,000 death benefit. Make sure you don’t make the mistake of under-insuring yourself thinking that you are saving money because you may be wrong.
The second thing to consider with term insurance is the length of the term. With the renewals in the policy making the premium increase at set points in the future you are best to try and match the length of the term with the length of the need. That 10 year term life insurance plan has a nice low premium to start with compared to the 20 year plan, but what happens as the 10 year plan renews 3-4 times in cost at the end of 10 years while the 20 year premium remains constant? You pay way more in total for the 10 year plan over 20 years than you would had you originally taken out the 20 year plan.
We recommend our clients to try to match the length of their term life insurance policy with how long they need the coverage for. For example, if you are buying life insurance to protect your family because you have a three year old child, you should consider a 20 or 25 year term life insurance policy. This would ensure that you have level premiums (cost of the policy) and level death benefit until your child is in their adult years and no longer financially dependent on you. At the end of the term, your need for life insurance should be much lower than what it was when you initially took out the policy.
Another thing to consider with the purchase of a term life insurance policy is what options are available in the future. The biggest example is the option to convert the policy into a permanent life insurance plan, regardless of health or finances in the future. Even though term insurance is the best solution today for you, it doesn’t mean it will always be that way. If you get into a situation where you are facing a tax burden on your estate, the option to covert to a permanent policy is ideal. Knowing things about this option, particularly when it is available, will allow you to guarantee your ability to protect an estate in the future even if you don’t have one today.
Making the choice to get the coverage that you need today to protect your family is great, just don’t forget that the policy can also play a role in future decisions if it is set up properly from the beginning.