If you're in the market for life insurance, you might have been tempted by those ads claiming,"For just a few dollars a day, you can protect your family with $1 million in life insurance!" It sounds like a great deal, doesn't it? These ads typically refer to term life insurance. As its name implies, term life insurance provides protection for a limited amount of time or term, such as 10, 20, or30 years.
The concept is fairly simple: If you die while your policy is active, your family will receive a death benefit. But the many types of term insurance and options can be confusing. Is term life insurance likely to pay off for you? Start by asking yourself the following five questions.
- Nobody really wants to talk about life insurance; it sounds expensive and brings to mind our own mortality.
- Nevertheless, having the proper life insurance in place can bring peace of mind, knowing that your loved ones and beneficiaries will be taken care of financially when you die.
- Depending on your lifestyle, family structure, and financial position, different types of life insurance coverages exist that can be customized to meet your particular needs.
1. Why Do I Want Life Insurance?
Before you buy any kind of life insurance, think about why you're buying it. Are you protecting your family in case of early death? Have you taken on additional debt that requires you to provide coverage? Are you looking to leave an inheritanceor a gift to a charity?
If you wantinsurance to potentially coverfinancial obligations you'll havefor a very long time—possibly for the rest of your life—you maywant toconsiderpermanent life insurance.If you're in a cash crunch and have immediate obligations to your family, business partnersor lenders, term insurance can provide you with ashort-term solution.
2. What Type of Coverage IsAvailable?
Most people will have access to at least one of the two types of term insurance policies: group or individual.
Group Life Insurance
Most companies offer their employees some form of term life insurance as an employee benefit. This is called group term insurance because you're getting protection as part of a larger group. Usually, it's deducted right from your paycheck, and the only requirement for coverage is to complete a brief questionnaire with details of your health history. Here are some of the advantages of group term insurance:
- It's convenient. You can usually sign up for a policy when you take a new job and enroll in your company's benefits program. You may also have an opportunity to sign up during the annual enrollment period at your company when you cansign up for other benefits, such as medical ordental insuranceor an employer-sponsored retirement plan.
- No medical exam required. Most group plans don't require a physical exam. A statement of good health, along with a medical history, is usually all that's required to secure coverage.
- Automatic payments. Through payroll deduction, you'll hardly feel the financial hit of paying premiums every month.
As its name implies, an individual policy is one in which you apply for coverage on your own. You, ora family member,will own the actual policy. To obtain an individual policy, you'll probably have to undergo a medical exam of some sort, provide a detailed medical history,and give the insurance company permission to look into your medical records and perform a background check on any driving offenses orcriminal activities. This might sound a little invasive, but there are some great benefits to owning an individual life insurance policy.
- It's portable. If you take a new job at a different company, you don't have to worry about losing your life insurance protection.
- Level premiums.Generally, individual policies can be structured to have level premiums for the duration of the policy.
- Flexibility. If you ever want to upgrade or convert your term policy to a permanent policy, you might have more options available with an individual policy than you would with a group plan.
3. What If I Don't Die?
Ironically, some people who buy term life insurance get upset when they find out that if they don't die, they don't get anything back.If this is a concern for you, it's important to get an understanding of what will happen to your policy as you near the end of the term.
As you nearthe end of your policyterm, you may have the option of keeping your policy. If you do, and you have been paying level premiums, you can expect a hefty jump in your premium. So, if you are still healthy at that pointin your life and you want to keep the coverage, it may be best to apply for a new policy.
Perhaps you only wanted your policy to cover you as long as you had a mortgage, or until your children's college educationwaspaid for. If that's the case and you have no other obligations to protect, you might want to let the coverage expire.
4. How Can I Upgrade My CurrentPolicy?
Most term policies come with a "conversion privilege." This allows you to essentially trade in your old term policy for a new permanent policy and continue paying premiums, which may be higher.This is a great feature that provides future flexibility, but because some policies have limitations, you should familiarize yourself with the conversion rules of any policy you're considering.
The conversion privilege might have a time limitation on it.For example, you may have to convert it before you hit a certain age. Otherpolicies allow conversion during the entire term of the policy.The most generous term policies allow you to convert to any type of permanent policy available, such as whole life, universal lifeor variable universal life. Some term policies may force you to convert toone type, and some companies may not offer all types, which canlimit your options.
5. Where Do I Buy a Policy?
A number of online companiesoffer term insurance policies. These distributors typically focus on finding the policy with the lowest costbased onthe personal information you provide.
For a more personalized experience, you might consider finding a professional. An insurance agent will help you understandthe different typesof insuranceand should be able to answer any questions you might have. You can find one by visiting any of the major company websites or combing through your local phone book, but probably the best way to find a representative is to askfor a referral from a friend or business associate.
Finally, for group coverage, you can check with your employer. If you're self-employed, you may have access to a group plan through a professional association, or you may even be able to put a group plan in place for yourself and your employees.
The Bottom Line
After going through these five questions, you will be able to decide for yourself if that million-dollar coverage offered in the adis really what you need to provide for you and your family. If it's not, don't be afraid to pass it by—there are hundreds of policies waiting to provide you with the peace of mind you're looking for.
As an insurance expert with years of industry experience, I can confidently guide you through the complexities of life insurance, especially the often misunderstood realm of term life insurance. Let's dissect the key concepts discussed in the article, shedding light on the nuances of life insurance policies:
1. Purpose of Life Insurance: Understanding the purpose of life insurance is crucial. The article rightly points out that life insurance isn't just about one's mortality; it's a financial tool that can provide peace of mind. Depending on your goals—protecting your family, covering long-term financial obligations, leaving an inheritance, or supporting a charity—you may opt for different types of life insurance.
2. Types of Coverage: a. Term Life Insurance: Offers protection for a specific term (e.g., 10, 20, or 30 years). If you pass away during the policy term, your beneficiaries receive a death benefit. This type is suitable for short-term needs.
b. Permanent Life Insurance: Designed to cover you for your entire life. It includes various subtypes like whole life, universal life, and variable universal life. Permanent life insurance is ideal for long-term financial obligations.
3. Available Coverage Options: a. Group Life Insurance: Offered by companies to employees as a workplace benefit. It's convenient, often doesn't require a medical exam, and payments are deducted from your paycheck.
b. Individual Life Insurance: Purchased independently, requiring a detailed application, medical exam, and permission for the insurer to access your records. It offers portability, level premiums, and flexibility.
4. What If I Don't Die? Term life insurance doesn't provide a payout if you outlive the policy term. However, there are options as the term nears its end:
- You may have the option to keep the policy, but premiums might increase significantly.
- Consider applying for a new policy if you still need coverage for specific obligations.
5. Upgrading Your Policy: Many term policies come with a "conversion privilege" allowing you to convert to a permanent policy. However, be aware of limitations and time constraints associated with this feature. Some policies allow conversion to various permanent policy types, providing flexibility.
6. Where to Buy a Policy: a. Online Companies: Offer convenience and often focus on finding the lowest-cost policy based on provided information.
b. Insurance Agents: Provide a personalized experience, helping you understand different insurance types and answering questions. Recommendations from friends or business associates can be valuable.
Conclusion: The bottom line is to carefully consider your needs, financial situation, and goals when choosing a life insurance policy. The million-dollar coverage advertised may not be suitable for everyone, and there are numerous policies available to tailor coverage to your specific requirements. Don't hesitate to explore your options and seek guidance from professionals to make an informed decision.