How long should I have life insurance?

When exploring life insurance options, you’ll find several types of policies, which can make it challenging to decide what fits your needs—and how long you should keep coverage. The right choice depends on how long others rely on your financial support and the amount of protection required to help meet those needs. Here are key factors you can consider when comparing policy types and determining the right length of coverage for your situation.

Different types of life insurance policies and options for length

To help determine how long a policy should last, it can be helpful to examine the types of life insurance available. There are two main types of policies.

Term life insurance policy

A term life insurance policy has level premiums and lasts for a set period — usually 10, 15, 20, or 30 years. If the insured person dies during the term, the insurance company will pay the beneficiary a death benefit. This generally tax-free lump sum can be used for various financial needs, including helping a family cover final expenses, paying off medical debt, keeping up with the mortgage or rent, or creating an emergency fund for the future. To continue coverage after the level term period, there may be an option to convert the policy to permanent coverage before the term ends, pay renewal premiums that increase annually, or shop for a new policy, which will require new underwriting. Term policies are usually the most budget-friendly option when buying life insurance and can help meet various families’ needs.

Permanent life insurance policy

Another category of life insurance is permanent life insurance. As the name implies, permanent life insurance policy provides coverage that does not expire, and it lasts for the insured's entire life as long as premiums are paid. Premiums maintain the policy’s death benefit and can potentially help build cash value that the policy owner can borrow. Following a waiting period after the policy is purchased, there may be an option to withdraw money that can help with financial needs. For example, if there is an unexpected health event or a house repair, if there is cash value, it can help pay for these expenses.

Cash value can also be tapped into for other reasons, such as helping to supplement retirement income. Any cash value in a permanent life insurance policy generally grows tax-deferred, so you won’t pay taxes on any earnings as long as the policy remains active. The beneficiaries will receive the death benefit following the death of the insured. Remember, since a permanent life insurance policy provides coverage for a person’s whole life, it typically costs more than term life insurance.

How to determine the right life insurance policy length for your needs

Various factors can help determine how much life insurance coverage is needed, including your current age, how many people depend on you financially, your budget, and what expenses loved ones will need to cover. If a family is on a tighter budget or has young children, term life insurance may be a good fit. For those seeking coverage for their entire life or wish to have a policy that can build cash value, then permanent life insurance may be the right coverage for meeting those goals.

Both types of coverage can bring valuable protection to a financial plan and help ensure loved ones have a financial safety net for the future. The amount of life insurance coverage needed can vary widely, but a good starting point is to consider how much annual income your dependents would need and how long they would require financial support.

• Amount of coverage that fits budget
• Amount of coverage you qualify for
• Funeral costs and other final expenses
• Outstanding debts
• Day-to-day living expenses
• Mortgage or rent costs
• Childcare expenses
• College costs for children
• Medical bills
• Taxes

When exploring life insurance options, you might consider a term length that covers financial obligations and outstanding debts. For example, if someone has a 20-year mortgage on a house, they may want to choose a term of 20 years or more to help ensure their mortgage payments are covered. The selected term length could also provide coverage during the years that a family relies on the insured financially, especially when children are still at home. You could start by making a list of all financial obligations and the years needed to pay down the balances.

Once there is a better idea of costs and timeline, it’s easier to determine how long life insurance coverage should last. If the number of years falls between available term periods, it may be a good idea to round up the coverage length to help ensure their needs will be covered.

Why it’s important to know how long your life insurance term should be

When buying life insurance, it’s important to remember you will never be younger or healthier than you are right now. Selecting the correct length of coverage at the time of purchase can help you avoid needing additional coverage in the future, which can come with higher premiums due to older age or potential health changes. There are also factors like inflation that could affect rates in the future.

While shorter-term policies may cost less upfront, they may not provide enough protection for your full financial timeline. Reviewing your long-term needs can help you choose the most appropriate coverage. Many policies also allow you to set your premium, ensuring your rate stays consistent as you age.

Do life insurance policies expire?

Yes, some life insurance policies can expire. Term life insurance provides coverage for a set period—such as 10, 20, or 30 years—and ends unless renewed or converted. Permanent policies, like whole life or universal life, do not expire as long as premiums are paid and the policy remains in good standing.

What happens if I outlive my term life insurance?

If the term ends and no action is taken, the life insurance policy simply expires and coverage ends, where no benefits are paid and premiums are no longer owed. If a person wishes to extend their coverage, they may be able to renew their policy, purchase a new one, or convert a term policy to permanent coverage. To make sure a policy remains aligned with ongoing coverage needs, it’s important to regularly review life insurance coverage. This helps prevent coverage from expiring unexpectedly and ensures the amount of protection continues to match a family’s financial situation, goals, and stage of life.

Find the right life insurance term length for you at North American Company

As you determine how much life insurance coverage is needed, you might also want to consider your eligibility for life insurance. For term life insurance, the coverage length is typically dependent upon the insured’s age and accounts for how many years they have before they retire and will no longer earn an income or have dependents. The older you are, the more limits you may have on choosing a term length.

Since older applicants may be at a potentially higher risk for health issues, they may be limited to shorter coverage. However, some life insurance companies do offer older applicants their longest-term length. Each life insurance company approaches this differently, so it’s important to talk to your financial professional to understand your options.

As you build a financial plan to protect loved ones and support long-term goals, consider the life insurance and annuity options available from North American. Our solutions are designed to help you create a strategy that meets both current and future needs and supports greater financial confidence through every stage of life.

Neither North American nor its agents give legal or tax advice. Please consult with and rely on a qualified legal or tax advisor before entering into or paying additional premiums for such arrangements.

Life insurance policies have terms under which the policy may be continued in effect or discontinued. Permanent life insurance requires monthly deductions to pay the policy’s charges and expenses, some of which will increase as the insured ages. These deductions may reduce the cash value of the policy. The current cost of insurance rates and current interest rates are not guaranteed. Therefore, the planned periodic premium may not be sufficient to carry the contract to maturity. For costs and complete details, refer to the policy or call or write, North American Company for Life and Health Insurance at One Sammons Plaza, Sioux Falls, SD 57193. Telephone 877-872-0757.

Policy loans from life insurance policies generally are not subject to income tax, provided the contract is not a Modified Endowment Contract (MEC), as defined by Section 7702A of the Internal Revenue Code. A policy loan or withdrawal from a life insurance policy that is a MEC is taxable upon receipt to the extent that the contract's cash value exceeds the premium paid. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy, and taxable distributions are subject to a 10% additional tax before age 59½, with certain exceptions. Policy loans and withdrawals will reduce cash value and death benefits. Policy loans are subject to interest charges. Consult with and rely on your tax advisor or attorney for your specific situation.

The primary purpose of life insurance is to provide a death benefit to beneficiaries. Because of the uncertainty surrounding all funding options except savings, it is critical to make personal savings the cornerstone of your college funding program. However, even a well-conceived savings plan can be vulnerable. Should you die prematurely, your savings plan could come to an abrupt end. To protect against this unexpected event, life insurance may be the only vehicle that can help assure the completion of a funding plan. In addition to the financial protection aspect of insurance, the tax-deferred buildup of cash values can be part of your college savings plan. Generally, if the policy is not a Modified Endowment Contract then tax-free withdrawals can be made up to the contract's cost basis. Moreover, if the policy is not a Modified Endowment Contract, then loans in excess of the cost basis are also tax free as long as the policy remains in force.

The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

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