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Ask Dave

Is Term 80 A Smart Buy?

Brett heard about a term 80 insurance plan, and Dave warns Brett to beware.

QUESTION: Brett heard about a term 80 insurance plan. Is that something he should look at to meet his insurance needs? Dave wants him to beware of what he thinks this might be.

ANSWER: Life insurance is a smart thing. Term 80 means it goes until you are 80 years old, which means it’s fairly expensive. Pure term insurance never has any savings built into it. I recommend 15 to 20-year term life insurance where the coverage and price stays the same for the life of the policy. Because the policy expires in 20 years, you need to get about the business of becoming debt-free and piling up money in your 401(k)s and wealth building.

Let’s say that in 20 years, you are married, have a 20-year old child in college, you have a paid-for house, and you’ve been saving $500 a month into a 401(k) or Roth IRA. Then you’d have about $500,000. If you have $500,000, no debt, and no kids that aren’t grown and gone, and you leave your wife with no insurance, you’d be okay. That’s why I recommend 20-year because it’ll take you through building wealth and getting out of debt so that you don’t need insurance when you die. If you price 20-year term against the policy you’re looking at, I suspect you’ll find it to be quite a bit cheaper.