It’s not the most common pregnancy story: I was eight months along, sipping water instead of coffee in the conference room, discussing with a financial planner what would happen to my unborn child and me if my husband were to die unexpectedly. Far from as morbid as it sounds, the conversation was actually one that centered around love.
Having a child was the wake-up call that made my husband and I truly understand what it means to look out for each other, for better and for worse. Protecting our financial future — and our new baby’s — brought me far more peace of mind than a prenatal massage.
Sure, planning a honeymoon and assembling a crib with your partner are great. But real love means wanting the best for each other, even if you aren’t around anymore. For many people (including me and my husband), that means figuring out which life insurance policy can help protect your partner’s and children’s financial well-being.
Why do you need life insurance at all?
Life insurance helps financially protect your family from the unexpected.
You and your partner build a life together with dreams of what that life will be. Maybe you see a picket fence and three kids (who will all graduate with Honors from the college of their choosing). Perhaps you see yourselves living child-free in a chic big city apartment.
No matter what your dream life looks like, your income helps you afford that future you see. If you die, not only does your family lose a loved one, but they could also lose the ability to afford their lifestyle.
A life insurance policy payout can be a safety net that helps your survivors shoulder the financial burden of your death. It can be comforting to know that you’ve put protection into place to help your loved ones meet their financial needs now and in the future should you no longer be there.
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What is a term length?
The amount of coverage and term length you choose will have a direct effect on what your monthly or yearly premium will be. We find at Haven Life that many people purchase coverage amounts at around 20 years and for $500,000 in term life insurance coverage.
But, is a 20-year term length right for you? Let’s find out.
5 types of people who might need a 20-year term length
Your financial situation will determine what amount of term life insurance you should buy. Factors like the age of your kids, how long you have left on your mortgage, and amount of debt will all impact the recommended term length. (Tip: a life insurance calculator can do this math for you.)
If you can say yes to one or more of the following statements, the 20-year term length may be your sweet spot:
“I have young kids”
Life insurance is there to help make sure your loved ones are provided for if you pass away. Many parents hope to financially support their kids into young adulthood or pay for a college education. If your youngest is a toddler, you’ve got about 20 years until his or her college graduation.
“I have less than 20 years to go on my mortgage”
A life insurance policy that covers the remaining term (and amount) of your mortgage can help your partner continue to afford the mortgage.
“I have debts that will be paid off within 20 years”
Depending on your state’s laws and the type of debt you carry, your spouse may be responsible for paying other debt you leave behind. The five years of car payments, the credit card debt on a card you share access to, and other debts can add up to a sizable bill for your surviving family to handle alone.
You don’t need to be a breadwinning spouse for this condition to apply to you. People whose parents co-signed on a mortgage may worry about leaving their parents with debt. Couples who maintain separate bank accounts and handle finances independently may still share credit card accounts for convenience or easy transparency, so debt still matters even if your spouse or other family member isn’t financially reliant on you in everyday life.
“I’m retiring within 15 or 20 years”
In some cases, a life insurance policy becomes much less important once you’re no longer supporting a family with your income. If your children are financially independent and your spouse could live comfortably off savings and their own Social Security or other retirement income, a life insurance term longer than 20 years might not be necessary. (There are, however, situations where carrying a policy into retirement could make sense.)
“I expect to be self-insured in 20 years”
Maybe you’re following an aggressive savings and investment plan, living well below your means, so you anticipate having the freedom to work (or not) the way you want after a couple of decades. Maybe you’re the only, beloved grandchild, and you’ll inherit two entire family estates. Sign on for just the term you need.
One of the biggest advantages to term life insurance is that it tides you over to that time when your safety net is in place, for a potentially very low cost.
“I’m on a strict budget”
A paycheck only stretches so far. Balancing long-term protection against immediate needs can be a challenge for families on a tight budget. A 30-year term length offers more extended protection, but the annual costs can be significantly higher.
A healthy, 35-year-old woman could buy a 20-year, $500K policy starting at $19.33 per month. A 30-year policy with the same details starts at $33.53. Once you weigh protection and affordability, you may decide a 20-year policy is your best choice.
How much does a 20-year term life insurance policy cost?
Several factors determine how much you’ll pay for a life insurance policy. Your age, health, and habits like tobacco use affect your premium. Costs also depend on how much coverage you need.
Here are premiums that non-smoking adults at different ages might pay:
- 20-year, $750,000 policy for a 30-year-old man in excellent health: $27.28 per month
- 20-year, $500,000 policy for a 30-year-old man in good health: $20.19 per month
- 20-year, $750,000 policy for a 40-year-old woman in excellent health: $35.55 per month
- 20-year, $500,000 policy for a 40-year-old woman in good health: $25.70 per month
Not sure how to come up with the coverage amount that’s right for you? Calculate your household expenses, factoring in both debts (e.g., mortgage, credit card debt) and assets (such as retirement or college savings). The number of dependents you have, and the number of years before they’re financially independent, will also give you an idea of how much it will cost to meet their needs. A life insurance calculator can help crunch the numbers, based on figures you provide.
Is 20-year term length better than 30-year?
When it comes to life insurance, custom-fit is so much better than cookie cutter. All of your plans — kids, projected retirement age, mortgage balance, debt and more — play into how long you need insurance coverage. A 20-year term lasts until young children are grown. It can save you money over other choices, such as a 30-year term length, which may be part of the reason why 20 years is the average term length our clients purchase. A 20-year term is a solid choice for many families and can be one part of a well-planned financial future. Securing precisely the coverage you need is a solid goal to keep in mind when you’re researching insurance policies.
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Jessica Sillers is a writer who specializes in financial services, business, and parenting. She lives near Washington, D.C. with her family.
The writer’s opinions are her own.