we're getting into the large lengths of
term life periods. 30 year term
life insurance is typically the longest
period of term that most life insurance
companies offer and for good reason.
Beyond this amount, you're probably
looking at whole life insurance and we
covered the advantages of
term life over
whole life in detail. Let's take a
look at when 30 years of term life make
sense when compared to the other short
lengths of term.
life insurance companies offer term
lengths ranging from 5 to 30 years.
The length of term you choose partially
depends on what age you apply for
coverage at. The cost of life
insurance is critical and 30 years of
term term life at age 30 is much cheaper
than 30 years at 40. The other
major issue is the intent of life
insurance. If you purchase 30
years of term at age 40, that takes you
to age 70. This is even 5 years
past Medicare and quite a few years past
what is expected to take children into
early adulthood. For this reason,
30 years usually makes the most sense
for younger people who have the
prescience and responsibility to shop
for life insurance at such an early age
(kudo's to those individuals mature at
such an early age). What if you're
really have to look at the premium
difference. Run your instant quote
and compare 30 year with 20 or 15.
If there's a huge difference in annual
premium, you really have to take this
into account. For example, if the
premium difference for $500K of coverage
between 20 and 30 years is
$1000/annually, that is $20K over the
course of the policy. $20K is
quite a bit of money. You can to
compare this against the additional 10
years of coverage and the financial
responsibilities that you have and how
long will they last. Will 20 years
adequately cover your loved one's
financial needs? In most cases, 20
years will cover the majority of long
term responsibilities. What about
the 30 year mortgage?
Wouldn't 30 years of term address the
standard 30 year mortgage?
Well...yes but it won't be cheap.
Insurance is rarely about insuring 100%
of a risk. If it was, it would be
too expensive. That's why
insurance has deductibles and
co-insurance. Life insurance
doesn't have deductibles but you can
think of insuring 20-25 years of a
standard 30 year mortgage as the
equivalent. Let's look at this
example. Let's say you purchase a
20 year mortgage to cover a new 30 year
mortgage and the unthinkable happens.
There are two possibilities.
One is that the life insurance benefit
is typically paid out in a lump sum
while the mortgage continues on a
monthly basis. Depending on the
amount of benefit, you may be able to
invest that lump sum and generate enough
interest/gains to pay all or most of the
monthly mortgage payment.
if the insured passes away late in the
policy. There's still 10
more years left on the mortgage in this
case. Keep in mind though that the
mortgage flips so that more and more is
being paid towards the principle of the
property. 80% of the house's value
may be paid off by this point.
Your loved ones could re-finance the
lower 20% for a much lower mortgage
payment or even draw off the equity of
the house as an additional source or
income during this period of time.
Again, insurance only make sense if you
can afford to make the premium payments.
You have to take this into account when
comparing 30 years versus 25 and 20.