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- Term life insurance is a life insurance product that lasts for a specific period of time.
- Experts recommend purchasing term life policies during your 30s and 40s as rates are lower when you’re younger, and you’re likely to be in a situation where you need coverage for a set period of time.
- Plus, since term life insurance tends to be affordable, it provides peace of mind while leaving room for people to use their money to build wealth at the same time.
- Considering term life insurance? Policygenius can help compare rates to find the best coverage for you »
During the pivotal decades of your 30s and 40s when you might own a home, have young children, or even have children headed to college, financial experts recommend having term life insurance.
Term life insurance is "pure" life insurance, says Logan Sachon, an insurance editor at insurance comparison site Policygenius. "You purchase a policy for a set term — usually 10 to 30 years — and during that term you pay premiums to keep your coverage active. If you die during the term, your beneficiaries receive a death benefit. If you don’t die during the term — the preferred outcome — your coverage ends when your term expires and you don’t get any money back," Sachon says.
Mark Cluett, director of content at Canadian life insurance comparison site PolicyAdvisor.com, says term life insurance is especially beneficial for those in their 30s or 40s who have major life events occurring during their prime earning years such as getting married, having children, and buying a home. "It’s also useful for those with temporary needs later in life, such as supporting beneficiaries, paying for their children’s education, and paying off debts," he says.
Life insurance rates are based on an insurance company’s calculation of your mortality, so rates are lower when you’re younger. Thus, purchasing in your 30s and 40s can be smart.
"In fact, on average, rates increase 8% every year as you age," Sachon says. Beyond that, she says, a new diagnosis could make your rates even higher. "For example, anxiety, high blood pressure and high cholesterol are common diagnoses that could result in rate increases," she says. "Some diagnoses could even result in you not being able to buy term life insurance at all — for example, a terminal illness."
Plus, even if you have no plans now to purchase permanent or whole life insurance (options that don’t expire and are more often recommended for people with extenuating financial circumstances), having a term policy when you are young and healthy protects you in the future and locks in options down the road.
"Most carriers will allow conversion to permanent products down the line without any new medical exam or underwriting," says Ty Stewart, founder of founder of SimpleLifeInsure.com. This means that even if you develop a serious health condition that would result in a decline on a new life insurance application, you can keep your coverage going, if you choose, by converting, he says.
Overall, a term life insurance policy can provide a financial safety net and peace of mind, generally at an affordable price. "Term life insurance will be the best option simply because it is the most cost-effective type of policy," says Jeff Zander, CEO of Zander Insurance, an independent insurance brokerage.
"By paying less for a term policy, individuals can use the money they are saving to address matters like paying off debts and building wealth," he says." That way, when the policy term expires, their level of financial risk has been reduced (or even eliminated) and they will no longer need a life insurance policy."
Buying term life insurance is the "least expensive way to get the full coverage needed," he says.
Considering term life insurance? Policygenius can help compare rates to find the best coverage for you »
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