Life insurance can be a messy and complex issue for the most astute person. What type of life insurance do you need to protect your loved ones? Personally, I believe that term life insurance policies are the best way to go for most people looking to manage the risk of an unplanned death of a financial breadwinner. So why is term life insurance the form I advocate for? It is simple, the structure of the policy makes it extremely affordable and very flexible. What a term policy consists of is a period of time, ten, fifteen, twenty or thirty years, where you pay a level premium for that period of time. If you happen to die, the death benefit will be paid to your beneficiaries. If you do not die, then the policy can lapse, and that is the end of the policy.
If someone is young and in good health, they can get a thirty-year policy for a significant death benefit for under $500 annually if not cheaper. This is the main point that makes these types of policies appealing to people. Then as you experience life events while you are still relatively young, such as buying a house or having children, you can purchase additional term policies to cover these life events in the unfortunate event that you die. This is an excellent and inexpensive way to insure major life events as they happen at reasonable rates.
Unlike a permanent policy, a term policy does not accumulate a cash value component. It expires at the end of the term worthless. And in many instances, you may extend the term policy paying new and higher premiums or convert it to a permanent policy if the underwriting company allows these things to happen.
As an example, a 30-year-old male in good health can purchase a $500,000 thirty-year level term policy for about $400 a year. As I alluded to that is relatively inexpensive but is it the best option for you to insure your family. Here are three things to consider.
A term policy that is convertible into a permanent policy may allow you to avoid additional medical underwriting if you elect to do the conversion within a certain time frame. Generally, that period is until you reach age 70 or the term expires without any action being taken. By doing this, it allows you to have the same medical underwriting that you had when you were younger and took out the policy even if your medical condition has changed. While the medical may not change the premiums will be based on your advanced age and will result in higher premiums to be paid on your part. But regardless, any time you get a life insurance policy when you are older will always cost more than if you had purchased the policy at a younger age.
A second factor that you must consider when buying any life insurance policy is to consider the financial health of the company you are buying the policy from. A life insurance policy is a contract between you and the insuring company where you pay the premiums and they are obliged to pay the death benefit upon the insureds death. This is especially important with longer-term policies and any permanent life insurance policy that you are thinking of purchasing. When assessing the health of a life insurance company look to these four companies to help you evaluate a company’s financial health. They are A.M. Best, Standard and Poor’s, Moody’s and Fitch who rank a company’s financial health from 1 to 100 with a higher value being better for the company and for you.
And the third factor is a person’s health, and lifestyle affects the premium costs and a person’s eligibility. Life insurance companies have a health rating scale that aids them in determining someone’s premium. Each company is different in these guidelines, and they can and do vary from company to company. You may weight too much for one company but not another. On certain medications? One company may exclude you while another may accept your policy request but charge you a higher premium when compared to someone who is not on any medication.
Online quotes can be fairly close to the actual price provided you have no health issues. Otherwise, you will need to seek the counsel of a life insurance agent and see what the underwriting requirements are for a company and go through their process to obtain an accurate quote for your needs. And never just consider the cost of the policy but consider all other relevant factors that can play a role in your decision especially the financial health of the issuing insurance company.
If you have any questions about life insurance, please leave a comment or contact me privately.
