- If you're young and have a family, life insurance can be a key piece of your financial safety net.
- Term insurance is often a good fit for families looking for an affordable policy or for coverage for a set period of time, like until kids reach adulthood.
- The policies can be relatively easy to shop for and compare because they're generally much simpler than other types of life insurance.
Has COVID prompted you to take a closer look at your family's financial safety net? If so you're in good company: About 1 in 3 young Americans with families say the pandemic has been a driver to buy life insurance.1
Of course, life insurance can be a cornerstone of your family's financial security even when there's no global pandemic to worry about. But to get yourself covered, you have to navigate the purchase process—a process that might seem to come with an endless number of lengthy steps and weighty decisions.
The good news is that, particularly for young families, a simple solution is often a good fit. Term insurance provides coverage for a premium that stays the same over a set period of time (like 10, 15, or 20 years). It can be a solid choice if you need the insurance until your kids reach adulthood, you pay off your mortgage, or you hit another mile marker. The policies can also be easier to understand, compare, and actually purchase than other types of insurance. (Learn more about the differences between term and permanent policies, and how to decide which type of life insurance is right for you.)
Here are some of the key points about term insurance that young families may need to know.
It's not just for final expenses
About 30% of consumers view life insurance as only for burial and final expenses, says Jill Maher, vice president at Fidelity Investments Life Insurance Company. This perception could result in not purchasing enough coverage to provide income replacement or enable wealth transfer—two key ways life insurance can benefit loved ones after a wage earner dies.
Here are some of the ways life insurance proceeds can be used.
It's often pretty cheap
Term insurance can be surprisingly affordable. For a healthy, nonsmoking 30-year-old, a $250,000 policy can cost less than $20 per month, depending on the term length you choose.2
Of course, there's a good reason for the low cost: Term insurance is designed to cover you only for a set period. If you live past your policy's term and you let the policy lapse instead of continuing it, your family will never see a payout. But many young families find this tradeoff makes sense—in 2020, of those who purchased insurance outside of work, 63% went with a term policy.1
You can think of it as a way to buy only the protection you need for as long as you really need it, but nothing extra.
Buying it can be (literally) painless
Sometimes getting coverage can entail going through a medical exam and blood draw, but it's often possible to complete the entire life insurance application process remotely, simply by answering some questions about your health and lifestyle.
"The process can be much easier, as well as faster, than it was in the past," says Tom Ewanich, vice president and actuary at Fidelity Investments Life Insurance Company.
Don't know how much to buy? That's OK
Choosing how much coverage to buy can be confusing, but you don't have to pick a number out of thin air. For guidance, consider what you're most comfortable relying on, such as one of the the following:
- Back-of-the-envelope estimate: One commonly used guideline is to obtain coverage for at least 10 times your salary.
- Calculator: Take a more fine-tuned run through the numbers with our life insurance calculators and tools.
- Live human: Sometimes, there's no substitute for talking through your questions with a real person. In that case, consider working with a financial professional.
Remember also that you may want to revisit your coverage amount from time to time, like if there's a new addition to your family or you take on a major new obligation, like a mortgage.
Comparison shopping is actually pretty simple
Comparing insurance policies may not be your first choice for how to spend an afternoon. But term insurance can be pretty straightforward to compare because it generally doesn't come with all the add-ons of other types of life insurance.
As long as you're looking at policies with the same basic terms, you mainly need to focus on just a few key items:
- The cost of the policy: Compare each policy's regular premium, which is typically charged on a monthly basis.
- The company's customer service: If something happens to you or if you just need to make a change to your policy, you probably don't want you or your family to have to spend hours on the phone with a prompt menu.
- The company's financial strength: You want to feel confident that it will still be around and able to pay out on your policy (if need be), even in a decade or two.
On that last point, the simplest way to check this is by looking for an insurer's financial strength ratings, which companies often post on their websites. Look for ratings from AM Best, S&P Global Ratings (also known as Standard & Poor's), Moody's Investors Service, or Fitch Ratings.3
You may need to do a little digging to understand the ratings (each rating company uses a different scale), but consider it time well spent. "You want confidence that your insurer has the financial strength to stick around for the long term," says Maher.
The sooner you buy, the lower your premiums may be
All else equal, the younger you are when you buy term insurance, the lower your monthly premiums should be (thanks to the math of life expectancies).
With term insurance, you typically lock in a flat monthly premium that, in most cases, stays the same for your policy term. So even if something changes in your health in the next year (or 10), your premium payments and level of coverage won't.
Looking to learn more? Consider getting a term insurance quote or read more about navigating life milestones. Or, if you're ready to dig into how life insurance might fit into your bigger financial picture, consider connecting with a Fidelity representative.