For How Long Should I Take Out a Life Insurance Policy?
- Knowing how much support your beneficiaries will need is the first step in determining how long to keep a policy in force. Experts recommend incorporating into a personal long-term financial plan a life insurance policy with a payable benefit of seven to 10 times the policyholder's annual earnings. Beneficiaries should expect to receive sufficient funds to pay off your debts, to establish a savings fund for unexpected expenses (if one has not been funded during your lifetime), and to replace your income until the family adjusts to living without your salary.
- The ages of children and other dependents who rely on your income for everyday financial support will need to be considered. For example, a parent with young children will want to consider the accumulative cost of the support needed until the children reach adulthood. College expenses can add significantly to the total cost and length of time a life insurance policy is needed.
- The projected age at which you plan to retire is an another significant factor to consider in determining how long you should maintain a life insurance policy. Prudent planning for the future involves saving and investing during working years to prepare for retirement years, when you can enjoy the rewards of your work without worrying about finances. When your financial goals for retirement are set, you should make sure you have sufficient health insurance to cover the costs of any final medical bills and subsequent funeral expenses. If all these goals are met when you begin retirement, you should no longer need to carry life insurance.
- Some individuals may no longer need a life insurance policy much earlier than retirement age. If the mortgage is paid off and consumer debts are eliminated, health insurance is adequate, the children are grown and independent, funeral expenses are prepaid or planned for and your spouse has his own retirement account and investments, paying for life insurance can be an unnecessary expense. The bottom line is that when you are confident that your death will no longer impose financial stress or hardship on your loved ones, a life insurance policy is no longer needed. For some that may be at age 40, for others at age 70. For those who may not achieve financial security even after retirement, a policy should be maintained until death.