Everyone’s financial situation is unique, which is why insurers offer a variety of options for life insurance. One of the most basic questions is “term life insurance vs. permanent life insurance” – and if you answer it by choosing term life insurance, you may be wondering how to select a term. The fact is that there’s no right or wrong answer. The reason you can choose from a range of terms is that what’s right for you and your family might not make sense for your next door neighbor or your cousin in another state. But, as a rule of thumb, consider how long you’ll need to have a death benefit – the amount your beneficiaries will receive if you die.
Many parents choose a term that will cover their children until at least early adulthood, when college expenses are no longer an issue. But, if you anticipate supporting your kids in graduate school or helping them financially while they pay off student loans, a longer term may make sense.
Likewise, if you’re married, you may want to ensure your spouse’s financial security by choosing a term that lasts beyond the time they turn 59½ and can withdraw funds from retirement accounts, such as 401(k)s and IRAs, without paying a penalty. Again, the answer depends on your personal situation.
Keep in mind that selecting a term that ends too early likely will result in higher premiums if you renew the term life insurance policy later in life. To avoid gaps in coverage or higher premiums down the road, select a term that will cover you and your loved ones for as long as necessary.