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Ask Dave

What Term Does He Need?

Derek is 24 with a wife and child. Should he buy a 20- or 30-year term life insurance policy?

QUESTION: Derek on Twitter is 24 with a wife and child. Should he buy a 20- or 30-year term life insurance policy?

ANSWER: I think the question is how long are you going to need the term life insurance? If you are going to have children for the next 10 years, then you probably would want to look at the 30-year because the one that’s born 10 years from now when you’re 34—your wife’s going to need 20 years’ worth of coverage while that happens. You want the kids to be grown and gone before the insurance term runs out. That’s one of the goals. And of course you want to be debt-free. That would include the house, which you pay off in 15 years or less since you’re listening to me because I tell you never to take out more than a 15-year fixed-rate mortgage. Ever. Then, from there, the kids need to be grown and gone. You need to have some money saved, and you need to have the house paid off and all of the debts paid off.

I guess the question is, how much longer are you going to grow your family? If you’re going to have maybe one more child and 20 years from now that child … you’d be fine with a 20-year level term. The difference in price is pretty substantial. Generally speaking, I tell most people—unless you’re going to continue for another 10 years growing your family—to do the 15- or 20-year level, but how long before the kid is grown and gone? That’s the trick. I knew when mine were leaving. They were leaving the house at 18 to go to college, and they were off my payroll at 22. I made that decision early.