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30 year Term Life Insurance

The major league of term life length

Now 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.

Most 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 older?

You 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.

What 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. 




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