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How much term life insurance do I need? Choosing term insurance by life stage

Young woman in blazer thinking
Nitat Termmee/Getty Images

When you consider a life insurance contract, you're displaying a powerful commitment to protecting your family no matter what may come.

Term life insurance, in particular, can be an affordable and accessible way to do just that—ensuring your family will receive the financial reassurance they need if you were to pass away. But as term insurance only covers you for certain periods of time, it can be tricky to choose how much life insurance you need to stay on track with your long-term financial plan.

How much life insurance you need based on life stage

To best tailor your life insurance contract, view your term life insurance needs through the lens of your current family circumstances. Start by considering what your family would need to have covered. Typically, this includes funeral expenses, paying off debt and replacing your income.

Some people start with a figure that's 10 times their annual salary. But let's look at why you might adjust those numbers based on your age, situation and family profile.

If you're a young adult

Young adulthood is generally the most affordable time to purchase a contract and lock in a low premium. As you're building your big-picture financial strategy, you can set yourself up now with benefits you can count on decades down the road.

Plus, being young doesn't mean that people don't depend on you. Whether you're currently single, part of a two-income couple without kids or caring for parents or other relatives, you'll want these family members to receive some assistance if something happens to you.

If you're a parent of young children

The years with young children can warrant high expenses, like buying a house in a good school district or paying for childcare. Knowing your family depends on your income can motivate you to seek term life insurance coverage that matches how long you expect these expenses to last.

You'll want to think through what kinds of debts you'd like the contract to cover and what level of income replacement would help your spouse and children go on without you. You can use a life insurance calculator to help get some more precise numbers in place.

If you're a parent of teens and/or an empty nester

As your children grow into young adults, it's wise to maintain life insurance protection. You may need a plan for how your family would cover the mortgage or pay for your child's college education if something happened to you. Many people in this in-between time haven't yet retired and are still depending on their earnings to support them. Having term or other life insurance coverage for as long as you plan to work can help protect your family in the event you pass away.

Empty nesters also sometimes choose to support their children financially, such as with a down payment on a home. If you want this kind of support to be available for your child, a term life insurance contract is a cost-effective way to create financial protection for your family's near-future needs.

If you're retired

Many people who reach retirement age still may be paying down some debt, whether to give themselves some financial freedom or to keep from passing that debt along to their families. A mid-length term life insurance contract could offer reassurance by helping your spouse or children cover your bills after you pass away or even support a cause you care about.

However, there are limits on the use of term coverage. For instance, the oldest issue age for a 10-year term contract is age 75; for a 20-year term, it's 65. For this reason, many people who are approaching or in retirement choose to convert term insurance to permanent or buy permanent for the first time since permanent life insurance can offer a death benefit no matter how long you live.

If you've had term life insurance for a while, your contract may need some updates. You may be reaching the end of the initial contract you took out when you were younger and want to renew it. Or you might explore converting your contract to permanent life insurance that can build cash value to use in your retirement and enhance your legacy.

Happy family with grandmother walking on the beach
Happy family with grandmother walking on the beach

Not sure if you need life insurance?

Self-reflection can be a helpful first step if you aren’t sure if you need life insurance. Starting a conversation about life insurance with your loved ones can help guide your decision.

Explore questions to ask

How different term lengths can meet your life insurance needs

While considering your life stage could give you a sense of how much coverage you need, you also need to decide how long you want that coverage to last. In most cases, longer contracts come with a higher monthly premium, so finding the right mix of affordability and coverage is wise. One consideration is that you only have to be evaluated for eligibility at the start of a term, so choosing a higher premium for 30 years would save you from having to be reevaluated for a new contract if you chose a shorter term instead.

However, it's most important to have life insurance that's the right amount—even if it means you need to purchase a shorter contract to start with.

Keep these factors in mind as you explore the different term lengths, most typically found in 10-, 15-, 20- and 30-year increments.

10-year life insurance contracts

These contracts are great for parents of schoolchildren who want life insurance coverage until their children are adults or out of college. They're also often a smart choice for people with less than 10 years before their planned retirement as a way of protecting earned income. In both cases, the strategy is to buy the length of term insurance that would last you until you reach a certain short-term milestone. A 10-year term is also one of the most affordable options for life insurance, helping you buy enough to cover your present needs, with the possibility of getting a different contract down the road when you have more budget wiggle room.

15-year life insurance contracts

These contracts balance affordability with coverage over a longer time horizon, which makes them nice options for locking in a low rate on a contract. If you're not quite sure what you'll need to cover in the future, this medium-term contract provides protection in case of the unexpected.

20-year life insurance contracts

One of the most common time horizons for term life insurance is 20 years. It's particularly nice for lasting through most of your dependents' childhoods or providing coverage if you're not exactly sure what your retirement will look like in a decade or two. If you're hoping to cover the remaining stretch of long-term loans to ensure they don't burden your family, this also can be a useful contract length.

30-year life insurance contracts

These contracts let you lock in an excellent rate when you're younger that will last for decades to come. They'll be more expensive upfront but less costly than getting three consecutive 10-year term policies. Buying shorter-term policies also requires going through underwriting each time a new contract is created—with a 30-year term, you'll only go through the eligibility process once.

Your family's life insurance needs can change over time

Term life insurance is one of the more affordable ways to offer your family financial protection. Your first consideration should be how much will cover your family's needs, and then how long you plan to continue working. You also can consider how locking in a longer term will allow you to preserve your insurability and go through the eligibility process as infrequently as possible. Term life insurance also comes with a variety of customization options, and you can consider renewing or converting your contract at certain points.

It's worth it to discover which options balance your current financial responsibility with a long-term view of protecting your family from financial concerns. A Thrivent financial advisor can help you land on the right mix of amount and length to cover household expenses and preserve the legacy you want to leave behind.