Having term life insurance is an important part of a person’s financial plan. The good news is that shopping for life insurance is easy and the costs are lower than in the past. However, people who are shopping for term life insurance have a number of decisions to make to find the best life insurance companies and policies that meet their needs. Carefully considering the following three features of term life insurance plans will help an insurance shopper to choose the right plan to financially protect his or her family.
Term life insurance policies are offered for different amounts of time. In most cases, policies last from five to thirty years, generally in five or ten year increments. Determining how long a policy needs to stay in force varies depending upon a number of factors. Parents may want to buy a policy that will last until the youngest child is 18 or somewhat older to financially provide for them until they are able to care for themselves. Homeowners may want to buy a policy that lasts until a mortgage has been paid off. Each buyer will need to consider his or her own situation and determine which policy length is right for his or her person situation.
A general rule is that a person should have insurance that is equal to ten times his or her annual income. For stay at home parents, a calculation should be made based upon the cost to replace his or her services of child care, meal preparation and home care to determine an annual income. However, this rule may need adjusted up or down to fit a person’s needs. For example, a person with a particularly large mortgage may need more than ten times income, while a person who has little debt and a large amount of savings may need less.
Level or Renewable Term
Term life buyers often have the choice between level term and renewable term insurance. Level term policies provide a set premium amount that will not change during the life of the policy. Conversely, annual renewable policy premiums can change from year to year. Annual renewable plans may be tempting due to a low initial premium, but the premiums will be much higher in the later years which may make the policy difficult to afford.