Not all Term Life is the Same
What You Should Know Before You Buy
There are advertisements everywhere - "Life insurance for just a few dollars a month!" Sounds great, right? But what those ads don't tell you is that not all term life policies are the same. Let’s break down some key features that can make one policy very different from another, so you can make an informed decision.
Types of Term Insurance
When it comes to term life, two of the most common are:
1. Guaranteed Level Term
This type of policy comes with a fixed premium over a specific number of years. Usually 10, 15, 20, or even 30 year. The insurance company averages the cost over that period, meaning your rate stays consistent even as you get older.
2. Annual Renewable Term (ART)
With ART, your premium will increase each year as you age. It is a pay as you go structure. If you have group life insurance coverage through your employer, it's probably ART.
Tip: if you have a short term need, or a temporary gap in coverage. ART may be a smart option.
Two important features to consider
Is the policy convertible?
No, I am not talking about a summer night drive with the wind in your hair! Convertibility means you can convert your term policy
into a permanent policy without the need to re-qualify for health underwriting.
Why is this important?
Imagine you have a 10 year level term. At 9 years and 9 months, you are diagnosed with a serious illness. Your policy will end in 3 months. If your policy is convertible, you can go to a permanent policy. Another year or two of premium may be very high, but at least you would maintain a sizable death benefit for your heirs.
"Note that policies have a maximum number of years that you can convert."
Locking in your health rating
You may have an indefinite need for 2 million in coverage, but you cannot afford premiums for a permanent policy for a few years. You can underwrite and put in place a convertible term policy now, get coverage and assure your good health underwriting. If you convert to a permanent policy in the future, you will maintain the original health rating, no matter what your current health condition is. (Look for a future article on whole life and universal life, and when you should consider one or the other.)
Living Benefits: Use Your Death Benefit While Living
Did you know that some life insurance, including term policies, have a rider that allows you to access all or part of your death benefit if you have a serious health event. There are different names for this rider such as an Advanced Benefit Rider (ABR) or Advance of Benefit (AOB). Some companies will charge a fee for this rider, and some will not. Each company will have a maximum of the amount of death benefit you can exchange for a payment now, and definitions as to what health conditions trigger the rider, but you should not need to be terminally ill. Chronic conditions such as a stroke, or Alzheimers may also be covered. There is rare coverage for critical injuries.
Why don't we have 40 different companies quoting?
As an independent, we do in fact have access to any insurance carrier. We have selected the few that we feel are the best for the money and have the best features. And not all companies want to be part of a quoting platform. One company in particular that is not included in the list has the most comprehensive Advanced Benefit Rider on the market, and they do not charge more for it. If ABR is important to you, and we feel it should be very important to everyone, we will get that quote for you separately.
How much should you buy?
This is different for everyone. But term is not expensive and if needed, you can never have too much.
Final Thoughts
Term policies aren't all the same. The cheapest rate may not be in your best interest - especially if it lacks flexibility or valuable features. Spending just a little more can provide peace of mind not only of an untimely death, but can also provide protection for a catastrophic health event.
Need help reviewing your current policy or shopping for the right coverage? Let's make sure that you and your loved ones are protected. Schedule a call today!
