Since shopping for term life insurance is not something you do every day, you are probably wondering how to go about it. You may even be unsure whether you need it right now. Below are five considerations.
- When to Buy Term Life Insurance
If you are just out of med school, highly leveraged and cash-strapped, you may think it’s not the right time to add to your expenses with term life insurance. However, the younger you are, the lower your life insurance premiums will be. In fact, premiums for a 40 year-old can be almost double of those for a 35-year-old.[i]
- The Term Length
When you purchase term life insurance, you have to select the length of the term. That is, when are you comfortable having the benefit expire? What is the best option to meet your needs? Some physicians like the term to match up with the years left in their mortgage. So if they have 20 years left to pay it off, they opt for a 20-year term. There may be, however, a more economical way to ensure your beneficiary can pay the mortgage even if you are no longer around. That’s because your loan’s value will gradually decline over the year. If it’s $600,000 today, it will not be that high 10 years from now. So you may be better off buying a 10-year term life policy for $600,000 today and another one 10 years from now for what remains of your mortgage.Another issue is when your children will graduate from college and be financially independent. If you have a two-year-old boy, you may want to opt for a 20-year term life insurance policy to make sure your family has enough financial backing until he is 22.
- The Amount of Term Life Insurance
The next question is, how much insurance do you need? To answer it, you need to evaluate your expenses, your financial reserves and whether you feel comfortable leaving your loved ones with just enough, a large financial buffer or something in between.Take a look at your spending today, including your mortgage, food, energy, car financing, credit card bills, insurance, home upkeep and all other miscellaneous expenses. You want to make sure you have them covered. Also, life changes as you age, and so do the associated costs. So envision what the future might look like, perhaps when college fees come your way or you need to take on the responsibility of an elderly parent. Make sure you buy enough term life insurance to protect your family as time goes by.If you have other sources of income, such as dividends or rents, or if you have financial investments that are easy to liquidate, your insurance may not have to cover all costs. If you want to lower your premium, however, take these other resources into account.If you would prefer a simpler approach to calculating how much term life insurance you need, you can go with the rule of thumb, recommended by many experts, of seven to 10 times your income.
- The Financial Strength of the Insurance Company Insurance will do you no good if the company you buy it from does not survive the term. So make sure you buy from one that’s been around a while and has a good reputation. Since you spend most of your waking hours caring for others, you may not have time to vet insurance company finances. You will be glad to know you can let AAFP do the work for you — we connect you with trusted insurance providers.
- How Easy It Is to Buy
When you want to buy something, you expect the process to be easy. However, that’s not always the case when it comes to insurance. Sometimes insurance companies require medical exams. If you just want to apply online to cross the task off your to-do list quickly, look for a company that offers you that option.
Life insurance may not be a fun thing to think about, but if you want to ensure your family has the financial resources they require no matter what happens to you, it’s necessary. If you want peace of mind, consult with an insurance agent who will help you determine the best term length, the amount of insurance you need and whether policy add-ons make sense for you.