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Life Insurance 101

Whether you’re just diving in or need a refresher, we have helpful guides to get through the basics and help you understand how life insurance can play a part in your financial planning.

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How Long Should My Coverage Last?

Figuring out how long your coverage should last depends on your situation. The first step is understanding the difference between the two main types of life insurance: term and cash value life insurance. Think of term as temporary life insurance while cash value insurance is designed to last your entire life and includes a component called an account value. Let’s take a closer look at both types, starting with term insurance.

Term life insurance in a nutshell.

Term life insurance provides coverage for a defined number of years. If you die during that time, your beneficiary receives the death benefit. If the term ends while you are still alive and you do not or cannot renew the policy, the policy expires and your beneficiaries will receive no payout when you die.

Most policies come with 10, 20, or 30-year terms, while others are designed to provide income-loss protection until you reach retirement, around age 65. Generally, while the longer the term policies are more expensive initially, they can save you a lot over the long term.

The coverage length rule of thumb.

It’s hard to estimate term length for the same reason you need insurance in the first place: There’s no telling what the future holds. In general, you can look at your financial obligations and estimate how long you’ll need protection. For you, this might be the time until your children are grown and likely to be independent. You’ll also want to consider the terms of your mortgage or other debts. For example, if you just bought a new home with a 30-year mortgage, you may want to consider having protection that could stay with you through that 30 year period, or even to age 65

How age plays a role.

Generally speaking, the younger you are when you purchase life insurance, the less expensive the premiums will be. Every year that passes increases the chances of a new diagnosis that could raise your costs or even prevent your being approved for a policy at all. And, while a longer term policy may cost more upfront, it may provide more value over the years compared to extending your coverage in the future and paying more in premiums.

What if I want my coverage to last my entire life?

Cash Value life insurance can be an option for people who want to help ensure that they have coverage for as long as they live. Unlike term life insurance, cash value life insurance provides coverage for the life of the insured, as long as the premiums are paid. (Most policies last until age 120.) Typically more expensive than term life insurance, cash value policies offer both a death benefit and a component, called the "accumulated value" or sometimes the "cash value," depending on the policy.

Cash value life insurance may also be an option for those with secondary goals, like preserving wealth for children and grandchildren or for a charity close to their heart. Cash value policies also include the added benefit of tax-deferred growth that can help grow the account value during your lifetime. Within certain limits determined by the policy, you can access this money while you are alive.

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