Term life insurance is a cost-effective way to protect the people who are important to you. But if you’ve never bought term life insurance before, understanding your options might seem difficult. Here are a few important things to think about before choosing the plan that’s right for you.
When buying a term policy, make sure you have the ability to convert the policy in the future should your needs change.
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WHY ARE YOU BUYING IT?
Generally, people buy term life insurance to cover a specific need that will end. For example, if you have children, you might buy coverage to make sure that they can still have all the opportunities that you would have given them if you were still alive.
But there are other life needs, including leaving a legacy, estate planning or paying for final expenses. In these cases, you will likely need permanent life insurance.
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ANNUALLY RENEWABLE OR LEVEL TERM?
Level term allows you to pick how long you want to keep the policy, and then you pay the same premium every year. This provides certainty for the amount you’ll pay. With annually renewable term, premiums change each year (typically they increase). An annually renewable policy is typically cheaper than a level policy to start, but as you age, annually renewable term insurance can become very expensive.
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WHAT LENGTH OF TERM SHOULD YOU BUY?
Level term typically comes in shorter time spans, like 10 or 20 years. Annually renewable term is typically offered up to a certain age, like 80.
Level term is good when you are covering a specific need for a limited period of time — for instance, a mortgage. Annually renewable term provides more flexibility to change your policy in the future as your needs evolve. Most people’s needs change as they age. For example, you might think you want insurance only until your kids are out of school, but then you might have other priorities that life insurance would cover.
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CAN YOU CONVERT?
People often buy term insurance when they’re young because it’s cheaper. However, at some point you may find that you want permanent life insurance because it offers benefits you can use while you’re alive in addition to a death benefit that never expires as long as you keep your policy.
When buying a term policy, make sure you have the ability to convert the policy in the future should your needs change. Oftentimes, you can convert the policy and buy more insurance without having to take another health exam. That means if you were ever to be diagnosed with a disease like cancer, you could get more insurance based on your health today.
FLEXIBILITY IS KEY
When it comes to term life insurance, it’s crucial to find a policy that provides you with a lot of flexibility in the future. Many people buy term life insurance when they’re very young and they don’t know what the future will hold for them. Keep your options open by choosing a term life insurance policy that gives you flexibility.
Social Security is an important part of your financial plan.
Your financial advisor can show you how Social Security will work to reinforce your retirement savings. And they’ll show you how it can help you live the life you want in retirement.
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