Term life insurance periods can are
available to address all types of
scenarios. The range is usually
from 5 years up to 30 years in 5 year
increments (i.e. choice of 5, 10, 15,
etc). Let's look at what it
typically the lowest available amount of
term on the market. When does a 5
year term period make sense?
First, let's look at the purpose of life
insurance to properly orient ourselves
for the use of 5 year term.
Usually, term life insurance is used to
replace income over a period of time.
This would be true if you are a new
family just starting out or have young
children. 5 year term is probably
not the right fit for this situation.
5 year is usually situational specific
which means it is to cover some other
event that will last up to 5 years.
Let's look at some example.
say you are 45 years old and your
children are just about to leave high
school. You figure they will be in
college for about 5 years (hopefully
these days). You do not have life
insurance or your current amount is
insufficient to cover the
ever-increasing cost of college in the
case of your passing. This might
be an ideal situation to get a
stand-alone or even additional 5 year
term life insurance policy to address
this specific financial concern.
With college costs quickly approaching
$100K and more for 4 years, this gives
you a sense of the need. The last
thing you want to have as a result of
your passing is that your children are
now unable to continue college or to do
under an extreme financial burden.
Most likely, they will only have one
chance to do college right and a quick
shot of 5 year term is a good
policy to make sure it becomes a
Another personal use of 5 year term is
purchase the life policy to cover a
period when another earner in the family
will stop working for a short duration.
This could be following the birth of a
child or if that person is setting off
to start their own business.
Again, this partially assumes that you
have other life insurance of a longer
duration anyway but the 5 year term at
least gets you out past a window of a
particular change where the financial
burden for the family is shifting more
to your shoulders. Assuming there
is no impact on underwriting
eligibility, 5 year term may also
address a change temporary shift in
employment or location. Let's say
you are taking a contract job that may
last 3-5 years in another country.
are also business uses for 5 year term
life insurance policies. For
example, you may hire a specialized
employee on a contract basis whose
ability is critical to the functioning
of the company. If the employment
contract is expected to last under 5
years, this might be a good insurance
policy in the form of a
key person insurance plan to cover
the finite contract period. You
can renew it, assuming the person meets
eligibility requirements and at a higher
rate, for another 5 years when the
current contract is complete.
basically, 5 year term is good when you
either have a personal or business financial
responsibility that will last less than
5 years. It's a temporary need.
Be careful not to purchase 5 year term
for needs that are more long term in
nature under the plan of reducing
monthly premium and just re-applying at
the end of the 5 year window. You
may not be able to qualify based on
health then and the rate will be more
expensive (since you're 5 years older
anyway). It's best to lock in a
term life length that truly matches
your needs and not try to "piece meal"