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Term insurance: What young families need to know

Key takeaways

  • Life insurance can be a key piece of your financial safety net.
  • Term insurance may be good for young 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 online, because they're generally much simpler than other types of life insurance.

Most people may not think about life insurance until prompted by a big life event—like marriage, buying a house, or having children, which can bring with them financial obligations such as paying a mortgage, childcare, and mapping out future financial goals.

Of course, life insurance can be a cornerstone of your family's financial security and a critical part of your complete financial plan. It can provide a safety net and help you gain peace of mind that your family may be protected in the event you or your spouse should die unexpectedly.

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 time-strapped 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), with policy amounts that can range from $250,000 to $10 million. 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.

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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.

In fact, in states that permit it, some life insurance providers have adopted simplified underwriting, meaning for some applicants, and for certain coverage amounts, there are fewer requirements (often no medical exam) and faster approval times. The application can quickly be completed online and some applicants will receive a decision in minutes or days.

“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.

Proceeds can be used by the family to maintain their lifestyle if the insured’s unexpected death were to occur

Here are some of the financial obligations that life insurance proceeds, or the income generated from the proceeds, can help address:

Uses for life insurance

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 goals—2 key ways life insurance can benefit loved ones after a wage earner dies.”

It's often cheaper than you think

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.1

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 families find this tradeoff makes sense—in 2021, of those who purchased insurance outside of work, 40% went with a term policy.2

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.

Don't know how much to buy? That's OK

Choosing how much coverage to buy can sometimes 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 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.

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 additional features that may be available with 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 the insurer 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 being 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? Read about navigating life milestones, or, if you're ready to dig into how life insurance might fit into your bigger financial picture, consider obtaining a free quote online from Fidelity.

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1. Fidelity Term Quote Tool, July 24, 2023. 2. American Council of Life Insurers 2022 Factbook. 3. Financial strength ratings are opinions from independent rating agencies of an insurer's financial strength and ability to pay its insurance policies and contract obligations. They are not recommendations to purchase, hold, or terminate any insurance policy or contract issued by an insurer, nor do they address the suitability of any particular policy or contract for a specific purpose or purchaser. The results from the "Estimate Your Coverage" calculator should only be used as a guide, not as a recommendation. There may be other factors that you'll need to consider when ultimately deciding how much life insurance is appropriate. The "Estimate Your Coverage" calculator results are hypothetical and are based on certain assumptions, which may differ significantly from your individual situation. Fidelity Insurance Specialists are licensed insurance agents.

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This information is general in nature and provided for educational purposes only.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

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