Term life insurance is always considered “short term,” even if you have the policy for many years. This is because there is an ultimate expiration date on the policy, unlike whole life policies which are in force until you die.
However, within this “short term” framework, there are wide varieties of ways your policy can be set up, and deciding how long your “term” should be is one of the decisions which will affect the price and feasibility of your insurance purchase.
In general, the shorter the term, the more you will ultimately pay for your life insurance. This is because underwriting procedures must be followed every time a policy is issued, and it simply costs more to re-issue a policy every five years than to write one which lasts for thirty years. However, some people do not want to commit to a long-term policy, so the shorter-term choice makes sense for them.
However, if you are looking for the most optimal type of policy at the lowest cost, a 25-year term policy is probably the right one for you. There are several advantages to taking out a 25-year term policy over shorter or long periods of time.
The cost will probably be much lower for a 25-year term policy than for the same coverage for five years. Most people will need a term policy for longer than five years, so it makes sense to take the cheaper, longer policy period. Of course, you should examine your own term life needs to draw conclusions about how long your policy should be in effect, but 25 years is usually a reasonable figure.
This is because 25 years give the insured person time to pay off mortgages, save money from income, and in general create an estate for his or her family. Few people can manage this type of financial gain in less than 25 years; however, this time period is generally enough for a person to become vested in a pension and reach the age at which eligibility for many senior benefits begins.
Suppose, for example, a person purchase a 25-year insurance policy at the age of 30. Likely the premiums will be relatively low at this age, and the person is probably well-established in his or her job by this time. When the policy expires at age 55, the person will probably be close to retirement and will be able to begin drawing a pension soon. By purchasing a 25-year policy as a young person, the insured has guaranteed his or her financial future for many years to come, at the lowest possible cost.
Another advantage to a 25-year policy is that you are not committed to the full 30 years some insurance companies like to press on prospective customers. 25 years is often long enough to build your estate, while 30 may be longer than you need. With a 25-year policy, you have your life insurance just long enough, and do not pay for insurance you do not need.
Some companies allow 25-year term insurance payouts to be converted to monthly income instead of a lump-sum payment. This allows family members to keep paying the bills if a breadwinner dies, and to have a guaranteed income for a set period of time. Some policies will even allow monthly payouts for a designated time, followed by a lump-sum payout of the balance of the policy.
Many companies offer great rates on 25-year policies. Met Life, ING, TransAmerica, Lincoln National, and North American are just a few of the companies which offer 25-year term policies. Most companies will quote a rate on a 25-year term policy, although some companies will only offer 20-year and 30-year terms.
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