Term Life Insurance Guide
Term life is the purest form of life insurance. It pays your family a tax-free lump sum if you pass away during a specific time period.
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Understanding Everything About Term Life
Term life insurance is like renting an apartment. You pay for the protection as long as you need it, but you do not build equity. When the lease is up, the coverage ends.
How Long Should Your Term Be?
The "term" is the length of time your rate is locked in. Common periods are 10, 15, 20, or 30 years. The goal is to match the term length to your longest financial obligation.
- 10 Years: Best for older individuals near retirement or to cover short-term debts.
- 20 Years: The most popular choice. It typically covers a child from birth to adulthood.
- 30 Years: Ideal for young families with a new mortgage or newborns.
The "Buy Term and Invest the Difference" Strategy
Financial experts often recommend term life because it is significantly cheaper than whole life. The strategy suggests you buy a cheap term policy to cover your family’s risk, and take the money you saved (compared to a whole life premium) and invest it in a diversified portfolio (like an S&P 500 index fund). Over 20-30 years, this investment often yields a higher return than the cash value of a permanent policy.
Pros & Cons
✅ The Pros
- Affordable: Get $500k in coverage for the price of a takeout dinner.
- Simplicity: Pure protection with no hidden fees or investment complexity.
- Flexibility: Choose the exact length of time you need coverage.
❌ The Cons
- It Expires: If you outlive the term, the policy ends with no payout.
- No Cash Value: You cannot borrow against it or get money back if you cancel.
- Renewal Cost: Renewing after the term ends is extremely expensive.
💡 Pro Tip: Layering Policies
Instead of buying one large 30-year policy, some savvy buyers "ladder" their policies. For example, you might buy a $500k 30-year policy and a $500k 15-year policy. This gives you $1 million in coverage while the kids are young and the mortgage is high. After 15 years, when your debts are lower, half the coverage drops off, reducing your premiums.