The decisions you make when you buy life insurance in your twenties or thirties can help you avoid scrambling to find coverage before your term policy expires.
You could buy a permanent life insurance policy and never worry about the coverage expiring. But the premiums are much higher than the premiums for term insurance, and young families who start out with permanent insurance frequently buy too little coverage because that’s all they can afford.
“What we really need to focus on with younger families is the death benefit amount,” says Tim Maurer, director of adviser development for the BAM Alliance, a network of independent financial advisers. A 30-year term policy is also an option, but those premiums can be pricey, too.
A more cost-effective way to extend the coverage is to layer policies, says Maurer. Buy a 20-year term policy for the bulk of your coverage. That allows you to get a death benefit large enough to protect your family while your kids are at home and you’re making mortgage payments. “You want to have all of those years covered, but you might not need that much coverage for the whole time,” Mauer says. If you’d like coverage that lasts longer, you could also get a 30-year term with a smaller death benefit.
For example, a 35-year-old man could buy a $500,000, 20-year term policy for $250 per year and layer $250,000 of 30-year coverage for an additional $260 per year, which would cover him until age 65, says Udell. If you want some permanent coverage, too, you could add $100,000 of guaranteed universal life (GUL), which you can keep for your lifetime, for about $620 per year (whole life would cost about double that). A 35-year-old woman would pay about $215 per year for a $500,000, 20-year term policy and could get a $250,000, 30-year term policy for an additional $226 per year. She could add a $100,000 GUL policy for about $515 per year.
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
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