Top Questions to Ask When Buying Term Life Insurance
By M. Kotch
Now that you’ve read a general overview of life insurance policies, you’re probably ready to know more about each of the different choices available. For those of you interested in term life insurance, here are the top questions you need to ask:
What is term life insurance?
Term life insurance is often described as the simplest form of life insurance for two reasons: it is the most inexpensive (when compared to whole life insurance) and because it provides coverage for a certain amount of time or “term.”
Why term life insurance?
• A term life insurance policy is a good choice for younger individuals (under the age of 35) who wish to provide for their spouse/partner, and is also frequently purchased by new parents.
• Term life insurance is cheaper then permanent life insurance and provides a large cash payout in the event of your death (policies range anywhere $150,000 to one million dollars and more). Permanent life insurance premiums are much higher than term ($100-$150/month vs. $15-$30/month for example) and typically provide a smaller cash payout.
• A term policy can provide much needed financial stability for young children until they’re college-bound and can help sustain a spouse’s quality of life during an already difficult time.
• Ideally, your term life insurance plan should last (depending on the policy you choose) until children leave home and you or spouse reach retirement and can depend on other sources of income (such as 401k, Roth IRA account or investments).
Who are the top providers of term life insurance?
According to the Insurance Information Institute, the top five ranking term life insurance providers are (in relation to number of policies issued): State Farm, AIG, Direct General Group, Citigroup and Allstate.
What are the different types of term life insurance?
Term life insurance can be purchased as a fixed (as you would with a fixed mortgage) or renewable policy. Common terms are: five-year plans, ten-year plan, 15-year plans, 20-year plans and 30-year plans. Other options include a yearly, or annual-renewable term, as well as a term life insurance plan that covers you until a certain age (such as 65, for example).
If I live past my term life insurance policy, will I receive a return of premium?
The answer to this is generally no. According to many statistics, most people outlive their term life insurance policies and are unable to access any of the premiums they have paid toward their plan.
What determines my ability to purchase term life insurance and affects premium costs?
Several factors influence the price of your term insurance policy. The top things are:
• Whether or not you’re a smoker
• Your age and overall health: do you have a preexisting condition (such as diabetes for example)?
• Your lifestyle: do you work in a dangerous field and or indulge in “high-adrenaline” sports/activities?
• The cash value you choose. The monthly premiums on a $500,000 policy will be greater than those on a $200,000 policy for instance.
What types of death does a term life insurance policy not cover?
Most insurance providers have suicide clauses and will not cash a policy if the cause of death is ruled as a suicide. Insurance companies may also impose other restrictions pertaining to “risky behavior,” which means that a term policy provider may not cover a death that is a result of indulging in “high-risk activity.” So if you are a NASCAR driver by trade or indulge in frequent climbs up Mount Everest, you’ll need to make sure your term life insurance policy coverage matches your lifestyle.
How often do I need to update my term life insurance policy?
You should get in contact with your insurance provider and make changes to your policy after important events such as: having a new baby, getting married/divorced or if a benefactor passes away. Be sure to keep your list of beneficiaries updated to ensure that they are eligible to collect the insurance money in the event of your death.
Is term life insurance only necessary for family or can it benefit business partners?
Term life insurance can be a great asset to your business partners and/or shareholders; a “key person” insurance policy (which is available as a term or permanent policy) can offset many challenges a company faces when losing an important business partner or founding member.
Note: Every term life insurance policy is different so remember to ask specific questions and compare prices before purchasing the plan that works for you.
