If you’re shopping around for Life insurance, you might find the process to be confusing and frustrating. You’re not alone — Life insurance can be an extremely complex product, one that confounds consumers across the nation. However, many families discover that Term Life insurance is a relatively simple policy that fulfills all of their insurance needs.
Term Life provides protection for a specified number of years, ranging anywhere from one to 30 years. If the policy holder dies sometime within the term, their family receives a death benefit. These policies are less expensive because they are designed solely for protection. Many people choose Term insurance because they figure the need for Life insurance will decrease as they get older. Term insurance is also good option for those who want to protect their children until a certain age.
Although this might seem fairly simple, there’s a lot more to Term Life insurance. Here are five things you should keep in mind as you shop around for a Term Life policy:
- Figure out your objective
Before you start shopping around for a Term Life policy, or any Life insurance for that matter, it’s important to ask yourself what you’re trying to accomplish. Depending on your goals, Term insurance might or might not be right for you. Most people who buy Term insurance outlive the policy’s term — which means they never receive the payout. However, if you’re just looking to protect your family and ensure your debts are paid off should you die within the next few years, a Term insurance might be the perfect solution.
- Understand Group vs. Individual
There are two different types of Term Life insurance policies: Group and Individual. Group Term Life is offered by most companies as an employee benefit. Typically, all you have to do to apply is complete a short health history questionnaire. Unlike individual plans, most group plans don’t require a physical exam. If you qualify, the premiums are automatically deducted from your paycheck each month. With Individual Life policies, you apply for coverage on your own, and you are the owner of the policy. Typically, you have to undergo a medical exam and provide a detailed medical history to apply for an individual policy. You might also have to sign an agreement that gives the insurer permission to examine your medical records and perform a background check on you.
Although the process of obtaining an Individual Life policy might seem more complicated and somewhat invasive, these policies offer a lot of advantages over group policies. For one, an individual policy is yours to keep. If you lose your job or decide to switch employers, you don’t have to worry about losing your Life insurance protection. Additionally, Individual policies usually offer what’s called “level premiums.” This means your premiums will not increase throughout the duration of your policy (which is usually 10, 20 or 30 years). Whereas, rates on Group policies usually increase every five years. Individual policies are also much more flexible than Group policies. For example, if you decide to upgrade your policy or switch to permanent policy, you’ll have more options available to you if you own an Individual policy.
- Devise an end-of-term plan
As your policy nears the end of the term, you have a few different options, including the following:
- Let the coverage expire: If you feel that Life insurance is no longer necessary — because your children are grown and/or your debts are paid off — then you might just want to let your policy expire.
- Keep the policy: If you still want coverage, you might consider keeping your policy — but it’s important to realize that your premiums might jump significantly if you extend the term. However, this might be your only choice if you still want coverage but know you can’t qualify for a new policy due to health problems.
- Get a new policy: If you are still healthy, you might decide to apply for a new policy to avoid an increase in premiums on your existing policy.
- Upgrade: If your Term policy includes a “conversion privilege,” you can upgrade it to a permanent policy.
- Know how to upgrade
If you choose to upgrade your Term Life policy to a permanent policy, you’ll have to read the fine print on your term contract. If your policy includes a conversion privilege, it might contain a time limitation. For example, once you reach age 70, some policies might not allow you to convert to a permanent policy. However, other plans allow you convert any time during the term of the policy.You should also find out what kind of policy to which you can convert. Although some Term policies allow you to convert to any kind of permanent policy (including Whole Life, Universal Life or Variable Universal Life) others might force you to convert to one specific type of policy. Finding the ideal Life insurance policy can be a daunting task. However, as long as you keep these tips in mind, and consult with one of our Life insurance specialists, you should be able to locate the best policy that will give you and your family peace of mind.