What the Experts Say: A Few Reasons to Have Term Life Insurance

You can trust in what experts say about a subject

- as long as you understand your own personal situation is unique and that no single solution fits all.

Let's take the subject of having term life insurance. Financial experts such as: Dave Ramsey, Suze Orman, and Clark Howard have weighed in on the matter of having term life vs. whole life and other life insurance products.

Consider the purchase of term life by asking these questions:

- What are the main reasons to buy any insurance?

- How much insurance should I buy?

- When should I buy insurance?

The answers can address more than one question. That's good! It makes things simpler.

Give me a reason to buy term life.

1. You got married. You have had an addition to the family. You bought a new house with a mortgage attached. They are really all the same reason: you've had a "life event" and now your life has changed. You need to protect those changes.

2. Term Life is more affordable and easy to budget. All the above experts agree on this. That new mortgage, the cost of raising a child, the cost of supporting a spouse (after you're gone), medical bills, funeral bills, car payments, utilities, food on the table all add up to a considerable sum you might not have thought was so large. The experts agree in general you should buy 6-12 times your current annual income.

If you do the math and it looks like the amount of life insurance and the premium are out of reach, then look at a minimum. How much money would it take to pay off the mortgage, pay off any car loans, other debt, unpaid medical bills and pay for the funeral?

If that seems a little much still, then take your monthly living expenses times 36 months. That should be enough time for the surviving members to get back on their feet and maintain the same standard of living.

3. Term life insurance protects you when you need it most. It is temporary, from 1 year up to 40 years. You will have that new mortgage paid off someday. You're kids will be grown, out of college and moved away. You will continue to accumulate savings for retirement and will be self-insured. You will not need insurance at that time. The insurance you buy today will have done it's job and there is no need to pay for it any longer.

How much insurance should I buy?

We've covered this and I hope I gave you some good ideas. Remember should you feel you need more insurance at a later time in your life, you can always apply for additional coverage.

When should I buy insurance?

Short answer, TODAY!

When you have a life event as described above. The new house with a mortgage will come with offers to buy mortgage protection insurance, which is term life. Don't take that offer until you have shopped around. Mortgage protection protects the lender. Term life insurance protects you! 

Another question to ask is how long should the term be? It depends on how old you are now. It depends on how long you will have a mortgage. It also depends on long it will be until those kids have started their own households. 

Compare 20-year term to 30-year term. 30-year will have a higher premium but have a lower overall cost. If you purchased 20-year term to economize, then after 20 years when the term is finished you determined you still needed coverage. Expect your premium to be much higher due to you age. Your health at that later time may also prevent you from having new coverage.

Just one more question: What about riders?

There are add-ons to a policy like Waiver of Premium that mean add-ons to the base premium. These riders generally have limited value and should not be included in your choice. The exception to that is a rider known as "Living Benefits" or an accelerated death benefit. This provision allows the policy owner to file a claim if they have been diagnosed with a terminal illness. Many carriers include this rider with the policy at no additional premium. Be sure to ask an independent life and health agent about Living Benefits.

More questions? Well by now, you are an expert too! I would look forward to hearing from you.